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How much has labour taxation contributed to European structural unemployment?

  • Planas, Christophe
  • Roeger, Werner
  • Rossi, Alessandro

This paper analyses the effect of labour taxes on Euro area unemployment. Empirical estimates obtained so far can be criticised as being spurious because the regressions generally lack non-measurable variables constituting the reservation wage that can possibly be non stationary. Here we overcome this problem by using an unobserved component model. For the Euro area unemployment, we find a significant tax effect that is in the middle of the estimates that can be found in the empirical literature. This study gives support to the view that lowering labour taxes can help to reduce unemployment in continental Europe.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 4 (April)
Pages: 1359-1375

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:4:p:1359-1375
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  1. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
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  9. Francesco Daveri, 2002. "Labor Taxes and Unemployment: a Survey of the Aggregate Evidence," CeRP Working Papers 18, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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  12. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc.
  13. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 0441, European Central Bank.
  14. 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.
  15. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
  16. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2004. "Dating Business Cycles: A Methodological Contribution with an Application to the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(4), pages 537-565, 09.
  17. Mikael Apel & Per Jansson, 1999. "System estimates of potential output and the NAIRU," Empirical Economics, Springer, vol. 24(3), pages 373-388.
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