Relation between tax wedge and employment rate: The case of OECD countries (original) (raw)
Related papers
Tax Wedge On Labour And Its Effect On Employment Growth In The European Union
Prague Economic Papers, 2010
The paper assesses the characteristics of tax wedge, employment and unemployment rate in the EU and by using linear regression analysis with panel-corrected standard errors on the sample of twenty-seven EU Member States over 1999-2008 period analyzes whether the tax wedge affects the employment growth. The empirical estimates have shown that, with regard to employment and unemployment rate, the EU Member States can be classifi ed into two groups. The fi rst group is characterized with high tax wedge, low employment and high unemployment rate, whereas the second group has the alternative characteristics. The negative tax wedge-employment relation was confi rmed in the panel regression analysis, showing that an increase in tax wedge for one percentage point decreases the employment growth in the EU-27 by around 0.04 percentage points, ceteris paribus. The empirical estimates suggest that the EU-27 should continue with the trend of reducing tax wedge, as this would increase employment growth and employment rate and decrease unemployment, especially in Member States with high tax wedge.
The tax system incidence on unemployment: A country-specific analysis for the OECD economies
Economic Modelling, 2008
This paper provides a detailed analysis on the incidence of the tax structure on the labor market. To do so it goes beyond the traditional examination of the 'level' effect of the fiscal wedge and considers a 'composition' effect defined as a payroll tax bias (PTB): the proportion of payroll taxes paid by employees with respect to the one paid by firms. We develop a right-to-manage model encompassing different wage bargaining systems and the incidence of different type of taxes. Controlling for demand-side and supply-side determinants of unemployment, we show that the PTB plays a significant role in explaining unemployment in the continental European countries, but not in the Nordic nor the Anglo-Saxon ones. We also show that there is no relationship between the incidence of the PTB and unemployment persistence, even though there is a positive one with respect to the level of the fiscal wedge.
Tax Wedge Phenomenon and Its Possible Analytical Impacts on the Investments in OECD
Universal Journal of Accounting and Finance, 2020
In this study, we aim to put forth the tax wedge case that affects both the labor costs and the proposed investment level that also means economic growth through the public decision-making process in an analytical framework. Given that the tax wedge is the proportional difference between the tax paid by a taxpayer worker and the cost to the employer, it is understood that the effect levels also create different differential effects. In this context, it is necessary to question the analytical relationship between the tax wedge and the tax burden. The relationship between this systematic-analytical structural relationship and economic growth also means examining possible externalities in their impact levels. It seems that this effect on OECD countries reveals significant differences according to the development levels of the states. Besides, the breaking point where these differences are substantial in terms of our determinations is the tax burden of nations, and it is understood that the proportional changes in the tax wedge are directly affected by this financial fact. In addition, the fact that OECD countries also have different tax burdens, the differences between tax systems in practice also differentiate the analytical relationship between the tax wedge and tax burdens. However, the measures related to the deviations of global financial and economic relations between OECD countries reveal that possible analytical differences between tax wedge and tax burdens have tried to be overcome via the fundamental systemic financial restructures in recent years.
The Effect of Tax Wedge on Youth Unemployment: A Panel VAR Approach
"Studies on Interdisciplinary Economics and Business -Volume I", 2018
Today, unemployment is the foremost economic problem faced by countries worldwide. The first group to be affected negatively as a result of the factors that cause a decrease in the production such as structural problems, lack of demand or crisis experienced in the economies of both developed and developing countries is employees. A decline in the production capacity and the existence of negative market factors decrease employment rates while increasing unemployment rates. Also, these kinds of problems lead to a drop in the level of economic growth that contributes positively to employment especially in the developing countries where the potential level of the young labour force is high (Ghose et al. 2008: p. 17). The tax wedge can be defined as the difference between the gross labour income and the net take-home pay of the employee (Festa, 2015; OECD, 2018) or, in other words, the sum of taxes paid to the state per labour and social security contributions (Radu et al. 2018). Even though the definitions of tax wedge differ partly, the common point in these definitions is the employee’s tax and financial obligations on the income. These obligations increase the cost caused by the labour to the employer. Business owners, who try to minimize their costs in order to make profit tend to employ unrecorded workers, participate in the underground economy and eventually reduce the labour capacity. In the process of reducing the labour capacity, the young labour force is the first to be chosen. The reasons may arise from the fact that the employers want to retain the key members of the business, young labour is inexperienced, investments in job shadowing are low, redundancy payments becomes higher as the service length increases (Casson, 1979: p. 58) and it is easy to relocate young workers as they are generally single and childless (Pastore, 2018: p. 3). The rest of the paper is organized as follows: Section 1 presents the theoretical framework and empirical literature review on the relationship between the tax wedge and unemployment. Section 2 introduces the data and methodology. Section 3 discusses the empirical results. Last section presents concluding remarks.
Study of the Tax Wedge in EU and other OECD Countries, Using Cluster Analysis
Procedia - Social and Behavioral Sciences, 2018
Our paperwork seeks to analyze the difference between the labor cost and the net wage (representing labor tax wedge) in correlation with the unemployment rate and employment rate, as the idea that a high labor cost produces distortions in the labor market is widely accepted. With this purpose in mind, we used the hierarchical cluster analysis on a sample of 41 countries (being about OECD and EU countries). Following this analysis, we concluded that the countries can be divided in two big categories based on the unemployment rate, employment rate and the difference between the labor cost and the net wage (labor tax wedge). For countries characterized by a large gap between labor costs and net wage and which also present a high level of unemployment there is a need to adopt fiscal measures for reducing labor cost.
Tax Wedges, Unemployment Benefits and Labour Market Outcomes in
2009
There has been a widely accepted belief that certain labor market institutions, includ-ing high taxation and generous benefits, can lead to low employment and/or high unemployment. To what extent do such priors about tax wedges and unemployment benefits apply to the new members of the EU? Principal Component Analysis (PCA) suggests the new members share similar characteristics to each other and should be grouped separately from the rest of Europe. There are statistically significant differences in the medians of unemployment benefits and the labor market outcomes of the less productive workers, but insignificant differences in prime-age outcomes and tax wedges. Within the new members, our non-parametric analysis finds tax wedges and the duration of benefits (not the replacement ratio) are associated with poor labor market outcomes, but the evidence is weak.
Labour Taxation and Its Impact on Employment Growth
Managing Global Transitions, 2012
The paper aims to assess the characteristics of labour taxation for five different groups of workers and labour market performance (in terms of employment and unemployment rate) in the eu and to examine whether tax wedge affects employment growth in the eu. The descriptive empirical estimates show that the level of labour taxation varies greatly across eu Member States, by which the tax wedge tends to be higher among New Member States (excluding Cyprus and Malta). Furthermore, the panel regression analyses confirm statistically significant negative relationship between tax wedge and employment growth in the eu as a whole. Therefore, the empirical analysis suggests that the eu-27 should continue with the trend of reducing tax wedge, as this would have favourable effects on labour market performance, especially among New Member States.
2002
Among policy-makers and academics there is a controversial discussion whether the tax mix influences labor market performance in advanced industrialized countries. Many economists argue that the total tax burden rather than the tax-mix matters for aggregate employment, whereas neither the burden nor the mix play major roles in determining unemployment in the long run. This paper aims at combining this literature with an analysis informed by comparative welfare state analysis. It starts with a discussion of standard economic accounts -the "incentives literature"and looks for cases where tax-mixes affect labor markets. Then the analysis shifts to a comparative point of view. Contemporaneous welfare states not only differ in terms of social expenditures, but also in the ways they fund these expenditures by various forms of taxation. The paper shows some of the linkages between the "tax regime" on the one hand, and the regime for social expenditures, and namely social transfers, on the other hand. The tax regime is, however, an imperfect "mirror image" of social expenditures and has the capacity to shape labor market outcomes. In particular, countries with high payroll and indirect taxation pose more problems for (low-wage) private sector employment than countries relying predominantly on income taxation. Moreover, since all countries have opened up their goods and capital markets, taxation these days should matter more for labor market outcomes than in times when markets were still national in nature. The paper attempts to judge the empirical plausibility of these claims. The empirical estimations generate three tentative results: First, there is some evidence that payroll and indirect taxation is more harmful for labor markets than income taxation. Second, this is particularly true for nontradables sectors with a low degree of productivity. Third, there is some evidence that the impact of taxation has increased in the last decades. Taken together, the three results add to an explanation why some welfare states in continental Europe have both low employment and high unemployment rates.
Determinants of tax revenue in OECD countries over the period 2001-2011
By using static and dynamic panel data techniques, this paper analyses the impact of economic, structural, institutional and social factors on tax revenue, across 34 countries from the Organisation for Economic Cooperation and Development, over the period 2001-2011. The results show that gross domestic product per capita, the industrial sector, and civil liberties have positive impact on the dependent variable, while the agricultural sector and the share of foreign direct investment in gross of the dependent variable enters positively in the equation and its effect is larger in high income countries. We also encounter diverse across countries regardless the level of development of the economies.
THE RELATIONSHIP BETWEEN DIRECT TAXES AND ECONOMIC GROWTH IN OECD COUNTRIES
Economic Themes, 2019
The aim of the paper is to identify a potential linear correlation between direct taxes and economic growth. The subject of the paper includes estimating the level and intensity of correlation between direct taxes and economic growth in OECD countries for the period 1996-2016. The study analyses tax forms such as personal income tax, corporate income tax and tax on property, and their potential relationship with economic growth, measured by GDP growth rate. Also, tax revenues growth has been included to determine whether it directly affects the economic growth in observed countries. The results of the group correlation matrix have shown that there is a statistically significant relationship between tax revenues growth, personal income tax, corporate income tax and gross domestic product in OECD countries. However, it is important to note that tax on property and gross domestic product are not significantly correlated at the OECD level, which is logical given the low share of this tax in those countries.