Unemployment has increased in virtually all OECD countries since the 1970s. In the 1990s, in a majority of states this rise has continued or unemployment rates have remained at a high level. And even in those countries in which unemployment has declined during the 1990s, at the end of the decade it is still much higher than in 1970 — the United States and Ireland being the exceptions. However different the governments' responses to the rise in unemployment have been, one feature stands out: the period since 1970 has also been characterised by significant increases in the level and pronounced changes in the structure of taxation (cf. MESSERE 1998). High tax levels have consequently been argued to be a major cause of unemployment (OECD 1995, EU 1993). In order to explore the impact of changes in taxes on unemployment, the theoretical relationship between these variables has to be known. There is substantial knowledge about the employment effects of taxes in competitive (labour) markets. However, the impact on unemployment of economic policy in general and tax policy in particular can only be explored satisfactorily in models which are characterised by unemployment (ATKINSON 1999, p. 66, STTGLITZ 1999).The question Of the present sundy is: What will be the labour market effects of changes in tax rates and of variations in the structure of tax systems if there is unemploment?
KeywordsIncome OECD Monopoly
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