Title: How Much Has Labour Taxation Contributed to EU Structural Unemployment?
Citation: JOURNAL OF ECONOMIC DYNAMICS & CONTROL vol. 31 no. 4 p. 1359-1375
Publication Year: 2007
JRC N°: JRC33224
ISSN: 0165-1889
URI: http://www.sciencedirect.com/science/article/pii/S0165188906000984
DOI: 10.1016/j.jedc.2006.05.005
Type: Articles in periodicals and books
Abstract: We analyse the effect of labour taxes on euro area unemployment. Making use of the Blanchard and Katz (1999) NAIRU model, we represent structural unemployment as made up of two elements: an observed part related to labour taxes plus a non-stationary unobservable component related to the reservation wage and to the wage mark up. Contrary to empirical estimates available so far, this modelling explicitly acknowledges the existence of non-measurable factors responsible for the unemployment non-stationarity. For the period 1970-2004 we obtain a tax effect that lies in the middle of the estimates that can be found in the literature. This study gives support to the view that lowering labour taxes can help to reduce unemployment in continental Europe.
JRC Directorate:Space, Security and Migration

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