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Labour taxes and unemployment evidence from a panel unobserved component model

  • Berger, Tino
  • Everaert, Gerdie

This paper estimates the impact of labour taxes on unemployment using a panel of yearly observations (1970-2005) for 16 OECD countries. Possible heterogeneity of the unemployment incidence of taxes is taken into account by grouping countries according to their wage-setting institutions. Panel data unit root and cointegration tests show that unemployment and labour tax rates are non-stationary but not cointegrated. As this finding may be induced by missing non-stationary variables, we set up a panel unobserved component model. Labour taxes are found to have a positive impact on unemployment only in countries characterised by strong but decentralised unions.

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

Volume (Year): 34 (2010)
Issue (Month): 3 (March)
Pages: 354-364

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:3:p:354-364
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