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

  • Jaakko Kiander
  • Juha Kilponen
  • Jouko Vilmunen

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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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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