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Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members

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Abstract

There has been a widely accepted belief that certain labor market institutions, including high taxation and generous benefits, can lead to low employment and/or high unemployment. To what extent do such priors about tax wedges and unemployment benefits apply to the new members of the EU? Principal Component Analysis (PCA) suggests the new members share similar characteristics to each other and should be grouped separately from the rest of Europe. There are statistically significant differences in the medians of unemployment benefits and the labor market outcomes of the less productive workers, but insignificant differences in primeage outcomes and tax wedges. Within the new members, our non-parametric analysis finds tax wedges and the duration of benefits (not the replacement ratio) are associated with poor labor market outcomes, but the evidence is weak.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal AUCO Czech Economic Review.

Volume (Year): 3 (2009)
Issue (Month): 1 (March)
Pages: 069-092

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Handle: RePEc:fau:aucocz:au2009_069

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Keywords: Labour market institutions; principal component analysis;

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References

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  1. André Sapir, 2005. "Globalisation and the reform of European social models," Policy Contributions 31, Bruegel.
  2. Andrew Glyn, 2003. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," Economics Series Working Papers 168, University of Oxford, Department of Economics.
  3. Stephen Nickell, 2004. "Employment and taxes," LSE Research Online Documents on Economics 19955, London School of Economics and Political Science, LSE Library.
  4. Bruno Amable & Lilas Demmou & Donatella Gatti, 2006. "Institutions, unemployment and inactivity in the OECD countries," PSE Working Papers halshs-00590495, HAL.
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  6. Marek Gora & Artur Radziwill & Agnieszka Sowa & Mateusz Walewski, 2006. "Tax Wedge and Skills: Case of Poland in International Perspective," CASE Network Reports 0064, CASE-Center for Social and Economic Research.
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Cited by:
  1. D. Filiz Unsal & Carlos Caceres, 2011. "Sovereign Spreads and Contagion Risks in Asia," IMF Working Papers 11/134, International Monetary Fund.
  2. Primož Dolenc & Suzana Laporšek, 2010. "Tax Wedge on Labour and its Effect on Employment Growth in the European Union," Prague Economic Papers, University of Economics, Prague, vol. 2010(4), pages 344-358.
  3. Anna Kochanova & Carlos Caceres, 2012. "Country Stress Events: Does Governance Matter?," IMF Working Papers 12/116, International Monetary Fund.
  4. Hazans, Mihails, 2011. "What Explains Prevalence of Informal Employment in European Countries: The Role of Labor Institutions, Governance, Immigrants, and Growth," IZA Discussion Papers 5872, Institute for the Study of Labor (IZA).
  5. Leoš Vítek, 2011. "Fiscal Instruments of a Support of the Families with Children and their Changes in Developed Countries," European Financial and Accounting Journal, University of Economics, Prague, vol. 2011(4), pages 60-84.
  6. H. Lehmann & A. Muravyev, 2010. "Labor market institutions and labor market performance: what can we learn from transition countries?," Working Papers 714, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Primoz Dolenc & Suzana Laporsek, 2012. "Labour Taxation and Its Impact on Employment Growth," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(3 (Fall)), pages 301-318.
  8. Anna Zasova, 2011. "Labour market institutions: an obstacle or support to Latvian labour market recovery?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 5-24, July.
  9. Alexei Izyumov, 2010. "Human Costs of Post-communist Transition: Public Policies and Private Response," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 93-125.
  10. Ana Grdoviæ Gnip & Iva Tomic, 2010. "How hard does the tax bite hurt? Croatian vs. European worker," Financial Theory and Practice, Institute of Public Finance, vol. 34(2), pages 109-142.

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