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Taxation and the Structure of Labor Markets: The Case of Corporatism

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  • Lawrence Summers
  • Jonathan Gruber
  • Rodrigo Vergara

Abstract

We propose an explanation for the wide variation in rates of taxation across developed economies, based on differences in labor market institutions. In "corporatist" economies, which feature centralized labor markets, taxes on labor input will be less distortionary than when labor supply is determined individually. Since the level of labor supply is set by a small group of decision-makers, these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive. Labor tax burdens are indeed higher in more corporatist nations, while nonlabor taxes are actually lower. There is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies.

Suggested Citation

  • Lawrence Summers & Jonathan Gruber & Rodrigo Vergara, 1993. "Taxation and the Structure of Labor Markets: The Case of Corporatism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 385-411.
    • Handle: RePEc:oup:qjecon:v:108:y:1993:i:2:p:385-411.
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