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IS THE IMPACT OF LABOR TAXES ON UNEMPLOYMENT ASYMMETRIC?

Published online by Cambridge University Press:  10 May 2011

Tino Berger  and
Gerdie Everaert
Tino Berger*
Affiliation:
University of Cologne and SHERPPA, Ghent University
Gerdie Everaert
Affiliation:
SHERPPA, Ghent University
*
Address correspondence to: Tino Berger, Center for Macroeconomic Research (CMR), University of Cologne, Albertus-Magnus-Platz, D-50923 Köln, Germany; e-mail: tino.berger@wiso.uni-koeln.de.
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Abstract

This paper tests whether increases and decreases in labor taxes have an asymmetric impact on unemployment. Using a panel of 16 OECD countries over the period 1970–2005, we estimate a panel unobserved-component model to account for the fact that unemployment rates and labor taxes are nonstationary but not cointegrated. We find a positive impact of labor tax increases on unemployment in European and Nordic countries, whereas for labor tax decreases, no significant impact is found in these countries. For Anglo-Saxon countries, neither increases nor decreases in labor taxes have any impact on unemployment.

Keywords

UnemploymentLabor TaxesAsymmetryUnobserved-Component Model
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 1 , January 2013 , pp. 143 - 154
Copyright
Copyright © Cambridge University Press 2011

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