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Tax policy and OECD unemployment

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  • Alvin Ó Murchú

Abstract

The effect of changes in payroll taxes on wages is a question of tax incidence. If workers can shift the burden of taxation onto employers, in the form of higher wages, we may expect increases in unemployment. This paper examines the extent to which workers succeed in shifting the burden of taxation onto employers and therefore the effects on unemployment of higher direct taxes. A reduced form vector autoregression model is used to estimate the effects, of a shock to direct taxes, on both wages and unemployment. The empirical estimates, estimated separately for eleven OECD countries, show workers failing to shift the burden of higher taxes and consequently insignificant changes in unemployment.

Suggested Citation

  • Alvin Ó Murchú, 2002. "Tax policy and OECD unemployment," Working Papers 200231, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:200231
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    File URL: http://hdl.handle.net/10197/1276
    File Function: First version, 2002
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    References listed on IDEAS

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    3. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    4. Vincent (Vincent Peter) Hogan, 2001. "Do taxes cause unemployment?," Working Papers 200101, School of Economics, University College Dublin.
    5. Kevin Denny & Aoife Hannan & Kevin H. O'Rourke, 1995. "Harmonising Irish tax rates : a computable general equilibrium approach," Working Papers 199503, School of Economics, University College Dublin.
    6. Alesina, Alberto & Perotti, Roberto, 1995. "Taxation and redistribution in an open economy," European Economic Review, Elsevier, vol. 39(5), pages 961-979, May.
    7. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 1-22, Supplemen.
    8. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    9. Knoester, Anthonie & van der Windt, Nico, 1987. "Real Wages and Taxation in Ten OECD Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 151-169, February.
    10. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 121-169, Supplemen.
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    12. Kay, John A, 1990. "Tax Policy: A Survey," Economic Journal, Royal Economic Society, vol. 100(399), pages 18-75, March.
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    1. Ideology in action
      by chris dillow in Stumbling and Mumbling on 2010-04-04 14:46:31

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