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On the Dynamics of Unemployment and Labor Tax Progression: The Case of Italy 1974-1995

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  • Daniela Sonedda

Abstract

This paper presents some empirical evidence for Italy from 1974 to 1995 on the relationship between the dynamics of unemployment and tax progressivity. To this purpose, the econometric tool is a Bayesian numerical approach based on a three-equation vector autoregression model where the unemployment effects are derived residually from the difference between employment and labor-force participation effects. By simultaneously estimating the labor market effects of changes in labor taxes, the current analysis points to the importance of the supply side of the labor market from a macroeconomic perspective and empirically supports the view that either the individual´s or the aggregate labor participation decisions have to be taken explicitly into account when evaluating whether or not tax progressivity is a useful policy device against unemployment.

Suggested Citation

  • Daniela Sonedda, 2009. "On the Dynamics of Unemployment and Labor Tax Progression: The Case of Italy 1974-1995," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(3), pages 271-296, September.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200909)65:3_271:otdoua_2.0.tx_2-g
    DOI: 10.1628/001522108X477778
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    References listed on IDEAS

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    1. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    2. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    3. 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.
    4. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 1-22, Supplemen.
    5. Giorgio Brunello & Claudio Lupi & Patrizia Ordine, 2005. "Labor Taxes in Local Labor Markets: Evidence from Italian Regions," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(1), pages 29-54, September.
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    More about this item

    Keywords

    unemployment; labor supply; progressive taxation;

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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