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Does a shift in the tax burden create employment?

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  • Joan Muysken
  • Tom Van Veen
  • Erik De Regt

Abstract

According to Dalton's Law it does not matter which side of the market is taxed. This holds for a model of the labour market as well. Nevertheless, it is often maintained that shifting the wedge from employers to employees has favourable effects on employment. That is, a shift from employers' to employees' taxes decreases wages and hence unemployment. This apparent paradox is discussed by analysing the impact of taxes in a wage bargaining model - it is shown that Dalton's Law does not necessarily hold in those models. The findings are illustrated by empirical results concerning tax shifting by employers and employees for the Netherlands. It is found that no employers' taxes are shifted backwards, whereas about 44% of employees' taxes are shifted forwards. These values imply a positive effect on employment of a reduction of the wedge in favour of employers.

Suggested Citation

  • Joan Muysken & Tom Van Veen & Erik De Regt, 1999. "Does a shift in the tax burden create employment?," Applied Economics, Taylor & Francis Journals, vol. 31(10), pages 1195-1205.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:10:p:1195-1205
    DOI: 10.1080/000368499323418
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    Citations

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    Cited by:

    1. Primož Dolenc & Suzana Laporšek, 2012. "Taxing wages and sustainable labour market performance: empirical evidence from OECD and EU countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 4(3), pages 234-253.
    2. Primož Dolenc & Suzana Laporšek, 2010. "Tax Wedge on Labour and its Effect on Employment Growth in the European Union," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(4), pages 344-358.
    3. Alexei Izyumov, 2010. "Human Costs of Post-communist Transition: Public Policies and Private Response," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 93-125.
    4. Ana Grdoviæ Gnip & Iva Tomic, 2010. "How hard does the tax bite hurt? Croatian vs. European worker," Financial Theory and Practice, Institute of Public Finance, vol. 34(2), pages 109-142.
    5. Erik de Regt, 2009. "Hourly wages and working time in the Dutch market sector 1962-1995," Applied Economics, Taylor & Francis Journals, vol. 41(6), pages 765-778.
    6. José Ramón García, 2004. "Desempleo Y Estructura Impositiva En El Mercado De Trabajo De La Ocde," Working Papers. Serie EC 2004-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. García, José Ramón & Sala, Hector, 2008. "The tax system incidence on unemployment: A country-specific analysis for the OECD economies," Economic Modelling, Elsevier, vol. 25(6), pages 1232-1245, November.
    8. Kessler, Judd B. & Norton, Michael I., 2016. "Tax aversion in labor supply," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 15-28.
    9. Wallentin, Bo & Agren, Anders, 2002. "Test of heteroscedasticity in a regression model in the presence of measurement errors," Economics Letters, Elsevier, vol. 76(2), pages 205-211, July.

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