Labor taxation and unemployment – an empirical investigation by Mark Gallagher (06/2010). “Applying cross-country regression analysis, this paper estimates the impact on unemployment rates of the relative tax on labor with respect to capital taxation. The study differs from earlier studies in two ways: it includes a much larger sample set, covering rich, middle income, and poor countries. Moreover, the outstanding independent variable is the ratio of the tax wedge on labor with respect to the company profit tax rate, rather than simply the tax wedge by itself, as latter affects technological choice. The empirical results show that heavily taxing labor relative to capital leads to increased unemployment.” See pdf attached
