Abstract

In this project we try to find new evidence for the link between labour taxation and unemployment. By bridging the empirical literature on labour market institutions (LMI) and economic performance (e.g. Blanchard and Wolfers 2000; Nickell et al. 2005) and the more tax-focused literature (e.g. Lockwood et al. 2000), which has taken a different approach to account for the remaining LMI, we expect to find additional evidence on whether labour taxes do or do not drive unemployment. The contribution to the existing knowledge is rather incremental. We try to improve at the methodical frontier by attaching more importance to the issue of panel cointegration and the treatment of serial correlation. Besides we add a few new variables to the existing set of labour taxes tthat include measures of tax progression. The data consist of time series from 1970 to the present for 20 OECD countries and includes indicators for LMI as well as macroeconomic variables.