Skip to main content
SpringerLink
Log in

Labor Income Tax and Output in a Panel of Central and Eastern European Countries: A Long-Run Perspective

  • Published:
International Advances in Economic Research Aims and scope Submit manuscript

Abstract

The goal of this empirical paper is to investigate the impact of labor income taxes on long-run output. The study makes use of annual data from seven European South-Eastern countries, i.e., Albania, Bulgaria, Czech Republic, Croatia, Former Yugoslav Republic of Macedonia, Hungary, Romania, Poland, Serbia, Slovakia and Slovenia, spanning the period 1999–2012, along with the methodology of panel cointegration. The empirical findings display that there exists a negative and statistically significant correlation between labor income taxes and output in the long-run. The implications seem crucial for designing an efficient and growth oriented fiscal policy in the countries that plan to join the Eurozone at a future point of time.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Agell, J., Lindh, T., & Ohlsson, H. (1997). Growth and the public sector: a critical review essay. European Journal of Political Economy, 13(1), 33–51.

    Article  Google Scholar 

  • Agell, J., Ohlsson, H., & Skogman-Thoursie, P. (2006). Growth effects of government expenditure and taxation in rich countries: a comment. European Economic Review, 50(1), 211–218.

    Article  Google Scholar 

  • Arin, K. P., & Koray, F. (2006). Are some taxes different than others? An empirical investigation of the effects of tax policy in Canada. Empirical Economics, 31(1), 183–193.

    Article  Google Scholar 

  • Badinger, H. (2008). Trade policy and productivity. European Economic Review, 52(5), 867–891.

    Article  Google Scholar 

  • Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5), S103–S125.

    Article  Google Scholar 

  • Barro, R. and Redlick, C. (2010). Macroeconomic effects from government purchases and taxes. Mimeo.

  • Bleaney, M., Gemmell, N., & Kneller, R. (2001). Testing the endogenous growth model: public expenditure, taxation and growth over the long-run. Canadian Journal of Economics, 34(1), 36–57.

    Article  Google Scholar 

  • Breitung, J. (2000). The local power of some unit root tests for panel data. Advances in Econometrics, 15(1), 161–177.

    Article  Google Scholar 

  • Brunetti, A., Kisunko, G., & Weber, B. (1997). Institutions in transition: reliability of rules and economic performance in Former Socialist countries. Working Paper, No. 1809. Washington: World Bank.

    Google Scholar 

  • Chamley, C. (1986). Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica, 54(3), 607–622.

    Article  Google Scholar 

  • Collard, F., & Dellas, H. (2005). Tax distortions and the case for price stability. Journal of Monetary Economics, 52(1), 249–273.

    Article  Google Scholar 

  • David, D., & Kraay, A. (2003). Institutions, trade and growth. Journal of Monetary Economics, 50(1), 133–162.

    Article  Google Scholar 

  • Easterly, W., & Levine, R. (2003). Tropics, germs, and crops: how endowments influence economic development. Journal of Monetary Economics, 50(1), 3–39.

    Article  Google Scholar 

  • Easterly, W., & Rebelo, S. T. (1993). Fiscal policy and economic growth: an empirical investigation. Journal of Monetary Economics, 7(1), 79–93.

    Google Scholar 

  • Eaton, J., & Rosen, H. S. (1980). Taxation, human capital, and uncertainty. American Economic Review, 70(4), 705–715.

    Google Scholar 

  • Engen, E., & Skinner, J. (1996). Taxation and economic growth. National Tax Journal, 49(4), 617–642.

    Google Scholar 

  • Galor, O., & Weil, D. N. (2000). Population, technology, and growth: from Malthusian stagnation to the demographic transition and beyond. The American Economic Review, 90(4), 806–828.

    Article  Google Scholar 

  • Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. Econometric Journal, 3(2), 148–161.

    Article  Google Scholar 

  • Heckman, J. J., Lochner, L., & Taber, C. (1998). Tax policy and human-capital formation. American Economic Review, 88(2), 293–297.

    Google Scholar 

  • Hsing, Y. (1996). Estimating the Laffer curve and policy implications. Journal of Socio-Economics, 25(3), 395–401.

    Article  Google Scholar 

  • Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74.

    Article  Google Scholar 

  • Inglot, T. (2008). Welfare States in East Central Europe, 1919–2004. Cambridge: Cambridge University Press.

    Google Scholar 

  • Kneller, R., Bleaney, M. F., & Gemmell, N. (1999). Fiscal policy and growth: evidence from OECD countries. Journal of Public Economics, 74(2), 171–190.

    Article  Google Scholar 

  • Koester, B. R., & Kormendi, R. C. (1989). Taxation, aggregate activity and economic growth: cross country evidence on some supply-side hypothesis. Economic Inquiry, 27(3), 367–386.

    Article  Google Scholar 

  • Kraay, A. (2010). How large is the government spending multiplier? Evidence from World Bank lending. Mimeo.

  • Laffer, A. B. (1981). Government exactions and revenue deficiencies. Cato Journal, 1(1), 1–21.

    Google Scholar 

  • Lee, Y., & Gordon, R. H. (2005). Tax structure and economic growth. Journal of Public Economics, 89(5–6), 1027–1043.

    Article  Google Scholar 

  • Leibfritz, W., Thornton, J., & Bibbee, A. (1997). Taxation and economic performance. OECD Working Paper, No. 176. Paris: OECD.

    Google Scholar 

  • Levin, A., Lin, C. F., & Chu, C. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24.

    Article  Google Scholar 

  • Li, W., & Sarte, P. D. G. (2004). Progressive taxation and long-run growth. The American Economic Review, 94(5), 1705–1716.

    Article  Google Scholar 

  • Lin, S. (1998). Labor income taxation and human capital accumulation. Journal of Public Economics, 68(3), 291–302.

    Article  Google Scholar 

  • Lucas, R. E. (1990). Supply-side economics: an analytical review. Oxford Economic Papers, 42(2), 293–316.

    Google Scholar 

  • Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulleting of Economics and Statistics, 61(4), 631–652.

    Article  Google Scholar 

  • Mattesini, F., & Rossi, L. (2012). Monetary policy and automatic stabilizers: the role of progressive taxation. Journal of Money, Credit and Banking, 44(5), 825–862.

    Article  Google Scholar 

  • Mullen, K. J., & Williams, M. (1994). Marginal tax rates and state economic growth. Regional Science and Urban Economics, 24(6), 687–705.

    Article  Google Scholar 

  • Myles, G. D. (2000). Taxation and economic growth. Fiscal Studies, 21(1), 141–168.

    Article  Google Scholar 

  • Ohanian, L., Raffo, A. and Rogerson, R. (2006). Long-term changes in labor supply and taxes: evidence from OECD countries, 1956–2004. Working Paper No. 12786, National Bureau of Economic Research.

  • Padovano, F., & Galli, E. (2002). Comparing the growth effects of marginal vs average tax rates and progressivity. European Journal of Political Economy, 18(3), 529–544.

    Article  Google Scholar 

  • Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(4), 653–670.

    Article  Google Scholar 

  • Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels. Advanced in Econometrics, 15(1), 93–130.

    Article  Google Scholar 

  • Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis: new results. Econometrics Theory, 20(3), 597–627.

    Google Scholar 

  • Prescott, E. (2004). Why do Americans work so much more than Europeans? Federal Reserve Bank of Minneapolis, Quarterly Review, 28(1), 2–13.

    Google Scholar 

  • Romer, C.D. and Romer, D.H. (2007). The macroeconomic effects of tax changes: estimates based on a new measure of fiscal shocks. Working Paper No. 13264, National Bureau of Economic Research.

  • Shapiro, S. S., & Wilk, M. B. (1965). An analysis of variance test for normality. Biometrika, 52(3–4), 591–611.

    Article  Google Scholar 

  • Svejnar, J. (2002). Transition economies: performance and challenges. Journal of Economic Perspectives, 16(1), 3–28.

    Article  Google Scholar 

  • Szelewa, D., & Polakowski, M. P. (2008). Who cares? Changing patterns of childcare in Central and Eastern Europe. Journal of European Social Policy, 18(2), 115–131.

    Article  Google Scholar 

  • Trostel, P. A. (1993). The effect of taxation on human capital. Journal of Political Economy, 101(2), 327–350.

    Article  Google Scholar 

Download references

Acknowledgments

The author wishes to thank the editor of the journal for her valuable comments and suggestions that enhanced the merit of this work. Needless to say, the usual disclaimer applies.

Author information

Authors and Affiliations

  1. Department of Banking & Financial Management, University of Piraeus, Piraeus, 18534, Greece

    Nicholas Apergis

  2. Department of Economics, Kingston University, Kingston, UK

    Nicholas Apergis

Authors
  1. Nicholas Apergis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Nicholas Apergis.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Apergis, N. Labor Income Tax and Output in a Panel of Central and Eastern European Countries: A Long-Run Perspective. Int Adv Econ Res 21, 1–12 (2015). https://doi.org/10.1007/s11294-014-9510-z

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11294-014-9510-z

Keywords

JEL

Search

Navigation