Labor tax reform, unemployment, and search

B.J. Heijdra, J.E. Ligthart

Research output: Contribution to journalArticleScientificpeer-review

Abstract

A key obstacle to reducing payroll taxes in many industrialized and transition countries is the direct revenue loss to the government that it implies. This paper studies a simple and practical labor tax reform of reducing a payroll tax and increasing a progressive wage tax that keeps the marginal tax wedge unchanged. Such a strategy increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations. Moreover, welfare rises if workers’ bargaining power is sufficiently large to exceed a critical value determined by the second-best Hosios condition.
Original languageEnglish
Pages (from-to)82-104
JournalInternational Tax and Public Finance
Volume16
Issue number1
Publication statusPublished - 2009

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Bargaining power
Unemployment
Payroll tax
Wages
Labor tax
Workers
Tax reform
Transition countries
Public revenue
Tax
Unemployment rate
Critical value
Revenue
Government
Equilibrium unemployment
Developed countries
Tax wedge

Cite this

Heijdra, B. J., & Ligthart, J. E. (2009). Labor tax reform, unemployment, and search. International Tax and Public Finance, 16(1), 82-104.
Heijdra, B.J. ; Ligthart, J.E. / Labor tax reform, unemployment, and search. In: International Tax and Public Finance. 2009 ; Vol. 16, No. 1. pp. 82-104.
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Heijdra, BJ & Ligthart, JE 2009, 'Labor tax reform, unemployment, and search', International Tax and Public Finance, vol. 16, no. 1, pp. 82-104.

Labor tax reform, unemployment, and search. / Heijdra, B.J.; Ligthart, J.E.

In: International Tax and Public Finance, Vol. 16, No. 1, 2009, p. 82-104.

Research output: Contribution to journalArticleScientificpeer-review

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