tax policy has an influence on the level of employment in an economy as well as on other choices made by participants in the labour market for example labour taxation determines the difference between the total labour costs faced by employers and the real consumption wages received by employees thus affecting labour demand and labour supply decisions this may contribute to a reduction of the labour force by diminishing incentives to either work or to work in the formal sector furthermore tax policy can affect retirement decisions the number of hours worked decisions relating to employee training and career choice including whether to be an employee or selfemployed oecd