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Do Corporate Income Tax Rates Cuts Create Jobs? The European Experience

Antonio Estache and Brigitta Gersey

No 2018-01, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: The paper assesses the impact of changes in the effective corporate tax rate on the unemployment rate in Europe between 1999 and 2014. The results suggest, for this sample, that a 1% decrease in the effective tax rate was associated with a 0.34% increase in the unemployment rate on average. This means that, in the region, lower corporate income taxes were linked to the replacement of labor by capital. This this substitution effect has been stronger than the output effect conservative administrations tend to focus on in their motivation for the rates cut. The substitution may be needed to achieved longer run growth payoffs, but these results suggest that transition cost are likely to be paid by workers and these should be addressed jointly with the corporate tax cut decisions.

Keywords: corporate taxation; unemployment rate; fixed effects; EU panel data (search for similar items in EconPapers)
Pages: 16 p.
Date: 2018-01
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
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