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Tax Wedge on Labour and its Effect on Employment Growth in the European Union

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  • Primož Dolenc
  • Suzana Laporšek

Abstract

The paper assesses the characteristics of tax wedge, employment and unemployment rate in the EU and by using linear regression analysis with panel-corrected standard errors on the sample of twenty-seven EU Member States over 1999-2008 period analyzes whether the tax wedge affects the employment growth. The empirical estimates have shown that, with regard to employment and unemployment rate, the EU Member States can be classified into two groups. The first group is characterized with high tax wedge, low employment and high unemployment rate, whereas the second group has the alternative characteristics. The negative tax wedge-employment relation was confirmed in the panel regression analysis, showing that an increase in tax wedge for one percentage point decreases the employment growth in the EU-27 by around 0.04 percentage points, ceteris paribus. The empirical estimates suggest that the EU-27 should continue with the trend of reducing tax wedge, as this would increase employment growth and employment rate and decrease unemployment, especially in Member States with high tax wedge.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2010 (2010)
Issue (Month): 4 ()
Pages: 344-358

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Handle: RePEc:prg:jnlpep:v:2010:y:2010:i:4:id:381:p:344-358

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Related research

Keywords: tax wedge; EU; employment growth; economic policy;

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References

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  1. Belot, M.V.K. & Ours, J.C. van, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," Discussion Paper 2000-40, Tilburg University, Center for Economic Research.
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Cited by:
  1. repec:alu:journl:v:2:y:2012:i:14:p:24 is not listed on IDEAS
  2. 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.

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