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Payroll Taxation, Unemployment and Skill Formation


  • Bergstrom, P.


The issue of lowering or restructuring payroll taxes in order to relieve the situation for the unemployed, and in particular unskilled workers, is a topical question on the political agenda across the European countries. This paper examines the potential effects of altered payroll taxes on unemployment by using a general equilibrium model with wage bargaining and two groups of labor: skilled and unskilled. The results within the framework of the paper are not very encouraging, though. Differentiated or generally lowered payroll taxes cannot be expected to provide relief for the unemployed unskilled, or to have any major impact on overall unemployment. However, increasing the progressiveness of the payroll tax could induce positive effects through wage moderation. This policy is however likely to have adverse effects on skill formation, a problem which is addressed by modelling individuals' choices of education explicitly.

Suggested Citation

  • Bergstrom, P., 1997. "Payroll Taxation, Unemployment and Skill Formation," Papers 1997-16, Uppsala - Working Paper Series.
  • Handle: RePEc:fth:uppaal:1997-16

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects


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