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The Effect of Economic Uncertainty on the Tax Wedge: The Case of Selected OECD Countries

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  • Bulent Diclehan Cadirci

    (Erzincan Binali Yildirim Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Iktisat Bolumu, Erzincan, Turkiye)

  • Mustafa Tekdere

    (Erzincan Binali Yildirim Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Finans ve Bankacilik Bolumu, Erzincan, Turkiye)

Abstract

Politico-economic uncertainty is able to directly and indirectly affect many macroeconomic variables. In this respect, politico-economic agents are expected to act scientifically and realistically to reduce uncertainty in their statements and decisions. Otherwise, the costs of economic activities will inevitably increase due to the uncertainty phenomenon. This study analyzes the relationship the tax wedge, one of the costs of economic activities, has with politico-economic uncertainty. The study performs the analysis over 18 OECD countries during the 2000-2020 period and examines the long- and short-term relationships using the panel autoregressive distributed lagpooled mean group (ARDL-PMG) model. According to the empirical results, the study obtained homogeneous results for the countries over the long term and concluded economic policy uncertainty to have a positive effect on the tax wedge rate. However, no short-terms relationship was found between the variables. The error correction coefficient was statistically significant (between 0 and -1) in the model, and approximately 11% of the short-term imbalances were concluded to have disappeared by the next period.

Suggested Citation

  • Bulent Diclehan Cadirci & Mustafa Tekdere, 2022. "The Effect of Economic Uncertainty on the Tax Wedge: The Case of Selected OECD Countries," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-2), pages 787-822, December.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:2:p:787-822
    DOI: 10.26650/ISTJECON2021-1125757
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    More about this item

    Keywords

    Economic uncertainty; Tax wedge; Panel ARDL estimation method JEL Classification: H26 ; C33 ; D80;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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