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A structural VAR approach on labour taxation policies

  • Daniela Sonedda

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 & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 1 ()
Pages: 95-114

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Handle: RePEc:taf:applec:v:38:y:2006:i:1:p:95-114
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  1. Thomas Bauer & Regina Riphahn, 2002. "Employment effects of payroll taxes - an empirical test for Germany," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 865-876.
  2. Henrik Hansen & Søren Johansen, 1992. "Recursive Estimation in Cointegrated VAR-Models," Discussion Papers 92-13, University of Copenhagen. Department of Economics.
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  4. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  5. Giorgio Brunello & Daniela Sonedda, 2006. "Progressive Taxation and Wage Setting when Unions Strategically Interact," "Marco Fanno" Working Papers 0017, Dipartimento di Scienze Economiche "Marco Fanno".
  6. 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.
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  8. M. Camarero & J. Ordonez & C. R. Tamarit, 2002. "Monetary transmission in Spain: a structural cointegrated VAR approach," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2201-2212.
  9. Garcia-Penalosa, Cecilia & Aghion, Philippe & Caroli, Eve, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Economics Papers from University Paris Dauphine 123456789/10091, Paris Dauphine University.
  10. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 221-264, October.
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  12. Pantula, Sastry G., 1989. "Testing for Unit Roots in Time Series Data," Econometric Theory, Cambridge University Press, vol. 5(02), pages 256-271, August.
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