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Title:The tax system incidence on unemployment: a country-specific analysis for the OECD economies PDF Logo
Authors:Garcia, José Ramón
Sala, Héctor
Issue Date:2006
Series/Report no.:IZA Discussion Papers 2226
Abstract: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,
Subjects:unemployment
unemployment persistence
fiscal wedge
payroll tax bias
JEL:E24
E62
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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