49^th International Scientific Conference 2018

THE TAX WEDGE AS THE DETERMINANT OF UNEMPLOYMENT: A COMPARATIVE OVERVIEW OF OECD COUNTRIES AND SERBIA

Jadranka Đurović Todorović, Marina Đorđević, Milica Ristić

Abstract:  The tax wedge is a significant part of labor costs and represents the difference between the gross wage and the net take-home pay. The tax wedge gets great attention in academic circles, after a major global economic and financial crisis, when the empirical research has discovered the positive correlation between unemployment and the tax wedge. This relationship can be described in the following way: the more elastic the labor supply curve or demand curve is, the more negative is the impact of the tax wedge on employment. The aim of this paper is to investigate the implications of the tax wedge on unemployment in OECD countries and Serbia and to analyze Serbian tax policy in international perspective. The cluster analysis was conducted on a sample of 36 countries, resulting in three groups of countries classified according to their tax wedge and unemployment rate. Serbia belongs to the first group of clusters, which comes right after the group of countries with the highest tax wedge and rate of unemployment. Interestingly, the results showed that the tax wedge has a significant impact on employment in OECD countries and Serbia.

Keywords:  tax wedge, labor costs, unemployment rate, hierarchical cluster analysis.

Published: February 12, 2019.  p. 61-75   PDF