Tax policy and OECD unemployment

Alvin Ó Murchú

No 200231, Working Papers from School of Economics, University College Dublin

Abstract: The effect of changes in payroll taxes on wages is a question of tax incidence. If workers can shift the burden of taxation onto employers, in the form of higher wages, we may expect increases in unemployment. This paper examines the extent to which workers succeed in shifting the burden of taxation onto employers and therefore the effects on unemployment of higher direct taxes. A reduced form vector autoregression model is used to estimate the effects, of a shock to direct taxes, on both wages and unemployment. The empirical estimates, estimated separately for eleven OECD countries, show workers failing to shift the burden of higher taxes and consequently insignificant changes in unemployment.

Keywords: Fiscal policy--OECD countries; Unemployment--OECD countries; Unemployment--Effect of wages on (search for similar items in EconPapers)
Date: 2002-12
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:200231

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