Taxation and the Structure of Labor Markets: The Case of Corporatism

Lawrence H. Summers, Jonathan Gruber and Rodrigo Vergara ()

No 4063, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose an explanation for the wide variation in rates of taxation across developed economies, based on differences in labor market institutions. In "corporatist" economies, which feature centralized labor markets, taxes on labor input will be less distortionary than when labor supply is determined individually. Since the level of labor supply is set by a small group of decision-makers, these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive. Labor tax burdens are indeed higher in more corporatist nations, and non-labor taxes are lower, which is consistent with this theory. There is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies.

Date: 1992-05
Note: PE
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Published as Quarterly Journal of Economics, May 1993

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Journal Article: Taxation and the Structure of Labor Markets: The Case of Corporatism (1993)
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