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Labour Taxes and Unemployment Evidence from a Panel Unobserved Component Model

  • T. BERGER

    ()

  • G. EVERAERT

    ()

This paper estimates the impact of labour taxes on unemployment using a panel of yearly observations (1970-2001) for 16 OECD countries. Possible heterogeneity of the unemployment incidence of taxes is taken into account by grouping countries according to their wage-setting institutions. Panel data unit root and cointegration tests show that unemployment and labour tax rates are non-stationary but not cointegrated. As this finding may be induced by missing non-stationary variables we set up a panel unobserved component model. Labour taxes are found to have a positive impact on unemployment only in countries characterised by strong but decentralised unions.

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File URL: http://wps-feb.ugent.be/Papers/wp_07_478.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 07/478.

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Length: 23 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:rug:rugwps:07/478
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