IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Do labour taxes (and their composition) affect wages in the short and in the long run?

  • Alfonso Arpaia

    (ECFIN, European Commission)

  • Giuseppe Carone

    (ECFIN, European Commission)

Measures aimed at reducing the tax burden on labour have been advocated to alleviate the EU unemployment problem. Most of the analyses document a relationship between the unemployment rate and the tax burden on labour. Hence, it is not possible to discern whether the effect on unemployment derives from labour demand, labour supply or through the wage formation mechanism. Moreover, the empirical analyses are usually static, and may be indicative of the steady-state determinants of the unemployment rate and do not reveal the features of the adjustment process. This paper studies the relationship between labour taxes and labour costs by modelling the wage formation mechanism in a dynamic context. We test if the composition of labour taxes affects labour costs in the short- and in the long-run and whether highly centralised bargaining systems have better employment performance than decentralised ones. We apply static and dynamic panel data techniques to a panel of EU countries. Our findings suggest that there is probably some wage resistance in the short-term but not in the long-term, although the transition to the long-term can be very long and therefore the short- term impact and the dynamics of adjustment can be long-lasting.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://128.118.178.162/eps/pe/papers/0411/0411004.pdf
Download Restriction: no

Paper provided by EconWPA in its series Public Economics with number 0411004.

as
in new window

Length: 61 pages
Date of creation: 12 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0411004
Note: Type of Document - pdf; pages: 61
Contact details of provider: Web page: http://128.118.178.162

References listed on IDEAS
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.:

as in new window
  1. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  2. Richard Disney, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR;CES;MSH, vol. 19(39), pages 267-311, 07.
  3. Stephen Nickell, 2004. "Employment and Taxes," CEP Discussion Papers dp0634, Centre for Economic Performance, LSE.
  4. Francesco Daveri, 2002. "Labor Taxes and Unemployment: a Survey of the Aggregate Evidence," CeRP Working Papers 18, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  5. Erkki Koskela & Ronnie Schöb, 1999. "Does the Composition of Wage and Payroll Taxes Matter Under Nash Bargaining?," Discussion Papers 203, Government Institute for Economic Research Finland (VATT).
  6. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
  7. Layard, Richard & Nickell, Stephen, 1986. "Unemployment in Britain," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S121-69, Supplemen.
  8. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  9. Giorgio Brunello & Maria Laura Parisi & Daniela Sonedda, 2002. "Labor Taxes and Wages: Evidence from Italy," CESifo Working Paper Series 715, CESifo Group Munich.
  10. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  11. Calmfors, Lars, 1998. "Macroeconomic Policy, Wage Setting and Employment - What Difference Does the EMU Make?," Seminar Papers 657, Stockholm University, Institute for International Economic Studies.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
  14. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  15. Kugler, Adriana D. & Kugler, Maurice, 2003. "The Labour Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," CEPR Discussion Papers 4046, C.E.P.R. Discussion Papers.
  16. Jonathan Gruber & Alan B. Krueger, 1991. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 111-144 National Bureau of Economic Research, Inc.
  17. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  18. Pekka Sinko & Juha Kilponen, 2001. "Labour Taxation and the Degree of Centralisation in a Trade Union Model with Endogenous Labour Supply," Discussion Papers 250, Government Institute for Economic Research Finland (VATT).
  19. Juha Kilponen & Pekka Sinko, 2005. "Does Centralised Wage Setting Lead into Higher Taxation," Labor and Demography 0509013, EconWPA.
  20. Koskela , Erkki, 2001. "Labour taxation and employment in trade union models: A partial survey," Research Discussion Papers 19/2001, Bank of Finland.
  21. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  22. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  23. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  24. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  25. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
  26. Pierre Picard & Eric Toulemonde, 2000. "Taxation and Labor Markets," Econometric Society World Congress 2000 Contributed Papers 0707, Econometric Society.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwppe:0411004. 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: (EconWPA)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.