The Impact of Labor Taxation on Job Creation and Unemployment
The Impact of Labor Taxation on Job Creation and Unemployment

Summary/Abstract: This paper investigates the relationship between labor taxation and labor market performance in the European Union (EU), with special attention to the new EU member states. The impact of the labor tax wedge on employment/unemployment rates and their growth are analyzed. We employ ordinary least square (OLS) regression framework, which confirms very weak positive associa-tion between labor taxes and unemployment rate in the EU. Panel regression framework confirms statistically significant negative association between tax wedge on labor costs and employment growth in the EU as a whole, though the correlation coefficient is rather small to make conclusions. The negative impact of labor taxation on employment growth tends to be larger in the eight EU tran-sition countries than in the rest of the EU.

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