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A structural VAR approach on labour taxation policies

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Daniela Sonedda

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Abstract

This paper presents a Structural VAR analysis on the employment and output effects of labour tax policies in six European countries for the period 1974--1997. By considering impulse response functions, it turns out that, on average, a shock to the total personal income tax revenues is positively correlated to employment, whereas there is mixed evidence on the output effect. Moreover, the quantitative impact of these effects, especially those related to the output, appears to be quite small. However, by introducing explicitly four labour tax parameters (namely the marginal and average tax rates for the personal income tax and the payroll tax), it turns out that these effects are not negligible after all: for some countries it is possible to conceive labour taxes as policy instruments favouring more employment and a better economic performance. However, the empirical support on the sign of the output and employment effects is mixed, suggesting that the same domestic fiscal policy does not produce the same impact in all the European countries.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 1 (January)
Pages: 95-114
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Handle: RePEc:taf:applec:v:38:y:2006:i:1:p:95-114

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
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  3. Bauer, Thomas & Riphahn, Regina T, 2002. "Employment Effects of Payroll Taxes--An Empirical Test for Germany," Applied Economics, Taylor and Francis Journals, vol. 34(7), pages 865-76, May. [Downloadable!] (restricted)
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  4. Philippe Aghion & Eve Caroli & Cecilia Garcia-Penalosa, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December. [Downloadable!] (restricted)
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  5. Henrik Hansen & Søren Johansen, 1992. "Recursive Estimation in Cointegrated VAR-Models," Discussion Papers 92-13, University of Copenhagen. Department of Economics.
  6. Giorgio Brunello & Daniela Sonedda, 2007. "Progressive taxation and wage setting when unions strategically interact," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 127-140, January. [Downloadable!] (restricted)
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  7. Fuest, Clemens & Huber, Bernd, 2000. "Is tax progression really good for employment? A model with endogenous hours of work," Labour Economics, Elsevier, vol. 7(1), pages 79-93, January. [Downloadable!] (restricted)
  8. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Blackwell Publishing, vol. 4(3), pages 249-73.
  9. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR, CES, MSH, vol. 12(25), pages 221-264, October. [Downloadable!] (restricted)
  10. Camarero, M & Ordonez, J & Tamarit, C R, 2002. "Monetary Transmission in Spain: A Structural Cointegrated VAR Approach," Applied Economics, Taylor and Francis Journals, vol. 34(17), pages 2201-12, November. [Downloadable!] (restricted)
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Cited by:
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  1. Kari O. E. Alho & Nuutti Nikula, 2006. "Productivity, Empoyment and Taxes - Evidence on the Potential Trade-offs and Impacts in the EU," Discussion Papers 1054, The Research Institute of the Finnish Economy. [Downloadable!]
  2. Kari Alho & Nuutti Nikula, 2007. "Productivity, Employment and Taxes - A SVAR Analysis of Trade-offs and Impacts," Discussion Papers 1074, The Research Institute of the Finnish Economy. [Downloadable!]
  3. BATTISTI,Michele, 2006. "Assessing persistence in the Italian rate of unemployment in presence of structural breaks and regional asymmetries, 1977 to 2004," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3). [Downloadable!] (restricted)
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