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Taxes, Growth and Unemployment in the OECD Countries - Does Collective Bargaininig Matter?

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  • Jaakko Kiander
  • Juha Kilponen
  • Jouko Vilmunen

Abstract

This paper analyses how collective bargaining affects the level and structure of labour and capital taxes in OECD countries by using cross-country-time-series data. Corporatist countries are found to have higher effective labor taxes on average during the 1970-1996 period. Effective capital taxes, in turn, are higher in the countries where union membership is higher. Estimation results suggest that reduction in the effective labor taxes decreases unemployment only in the unionized countries with decentralized wage bargaining. The capital taxes have only a small distorting effect on per-capita GDP growth, but there is no conclusive evidence on neither direct or indirect effect of the labor taxes on growth. Small or non-existent distortionary effects of capital and labour taxes on growth can be due to the potential efficiency gains arising from redistributive taxation. Potential efficiency gains of redistribution are supported by the finding that inequality seem to have a negative effect on per-capita GDP growth.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 235.

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Date of creation: 19 Dec 2000
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Handle: RePEc:fer:dpaper:235

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Keywords: Taxes; Growth; Unemployment; Unions;

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References

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  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  2. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Daron Acemoglu, 1993. "Reward Structures and the Allocation of Talent," CEP Discussion Papers dp0143, Centre for Economic Performance, LSE.
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  9. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  10. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  11. Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP -412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Summers, Lawrence H & Gruber, Jonathan & Vergara, Rodrigo, 1993. "Taxation and the Structure of Labor Markets: The Case of Corporatism," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 385-411, May.
  13. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
  14. Diamond, Peter, 1980. "Efficiency with Uncertain Supply," Review of Economic Studies, Wiley Blackwell, vol. 47(4), pages 645-51, July.
  15. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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  17. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 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.
  18. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 47-104, 04.
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  22. repec:fth:coluec:636 is not listed on IDEAS
  23. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September.
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Cited by:
  1. Pekka Sinko, 2002. "Labour Taxation, Tax Progression and Job Matching - Comparative Alternative Models of Wage Setting," Discussion Papers 285, Government Institute for Economic Research Finland (VATT).
  2. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and the long run? - Alfonso Arpaia and Giuseppe Carone," European Economy - Economic Papers 216, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Juha Kilponen & Pekka Sinko, 2005. "Does Centralised Wage Setting Lead into Higher Taxation," Labor and Demography 0509013, EconWPA.
  4. Jaakko Kiander, 2004. "Growth and Employment in Nordic Welfare States in the 1990s: a Tale of Crisis and Revival," Discussion Papers 336, Government Institute for Economic Research Finland (VATT).

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