The effect of labour taxes on labour demand: a comparison between Belgium and neighbouring countries
This study examines the evolution of labour costs and taxes in Belgium and neighbouring countries. We try to clarify the common issues in the current debate concerning labour costs and labour demand in Belgium and neighbouring countries and investigate the influence of labour costs on employment by using macroeconomic OECD data. We conclude that the tax wedge in Belgium is one of the highest of all OECD countries. Labour costs in Belgium rose at a moderate tempo, but labour productivity evolved less favourably compared with neighbouring countries. Belgian unit labour costs, considered as an indicator of competitiveness, evolved unfavourably. By using a dynamic error correction model we find a statistically significant but limited negative relation between labour costs and employment. A decrease in labour costs of 10% results in an increase of employment of only 1.3%, which indicates a strongly inelastic labour demand. In contrast to studies based on microeconomic data, which find generally higher wage elasticities, on the basis of this study no decisive elements can be found to question the rationale of the current wage indexation mechanism.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Web page: http://research.hubrussel.be|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
- L'Horty, Yannick & Rault, Christophe, 2003.
"The Impact of Growth, Labour Cost and Working Time on Employment: Lessons from the French Experience,"
IZA Discussion Papers
871, Institute for the Study of Labor (IZA).
- Yannick L'Horty & Christophe Rault, 2005. "The Impact of Growth, Labour Cost and Working Time on Employment: Lessons from the French Experience," LABOUR, CEIS, vol. 19(3), pages 595-620, 09.
- Sneessens, Henri R & Dreze, Jacques H, 1986.
"A Discussion of Belgian Unemployment, Combining Traditional Concepts and Disequilibrium Econometrics,"
London School of Economics and Political Science, vol. 53(210(S)), pages S89-119, Supplemen.
- SNEESSENS, Henri R. & DREZE, Jacques H., . "A discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics," CORE Discussion Papers RP 704, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Sneessens, H. & Dreze, J., 1985. "A discussion of Belgian unemployment, combining traditional concepts and disequilibrium econometrics," CORE Discussion Papers 1985040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Naastepad, C. W. M. & Kleinknecht, Alfred, 2004. "The Dutch productivity slowdown: the culprit at last?," Structural Change and Economic Dynamics, Elsevier, vol. 15(2), pages 137-163, June.
- European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
- Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
- European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
- Hamermesh, Daniel S & Pfann, Gerard A, 1996.
"Turnover and the Dynamics of Labour Demand,"
London School of Economics and Political Science, vol. 63(251), pages 359-67, August.
When requesting a correction, please mention this item's handle: RePEc:hub:wpecon:201125. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Janssens)
If references are entirely missing, you can add them using this form.