Analysis of the Relationship Between Tax Wedge and Unemployment in OECD Countries
EGE ACADEMIC REVIEW, cilt.26, sa.2, ss.271-282, 2026 (ESCI, TRDizin)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 26 Sayı: 2
- Basım Tarihi: 2026
- Doi Numarası: 10.21121/eab.20260208
- Dergi Adı: EGE ACADEMIC REVIEW
- Derginin Tarandığı İndeksler: Emerging Sources Citation Index (ESCI), TR DİZİN (ULAKBİM)
- Sayfa Sayıları: ss.271-282
- Dokuz Eylül Üniversitesi Adresli: Evet
Özet
The primary objective of this study is to empirically analyze the impact of labor-related fiscal burdens-specifically the tax wedge and social security contributions-on unemployment rates in OECD member countries over the period 2000-2023. By distinguishing between the short-run and long-run effects of labor taxation on employment dynamics, the study aims to address the inconsistencies in the existing literature and provide more robust insights for policymakers.To achieve this aim, the analysis employs advanced panel econometric techniques that account for cross-sectional dependence and long-run heterogeneity, thereby overcoming methodological limitations associated with cross-country differences in tax structures and labor market institutions. The empirical strategy integrates the LM bootstrap cointegration test of Westerlund and Edgerton (2007), which yields reliable inference under cross-sectional dependence, with the Pooled Mean Group (PMG) estimator developed by Shin et al. (1998), which allows short-run heterogeneity while constraining long-run coefficients to be homogeneous across countries. The findings reveal a statistically significant and positive long-run relationship between unemployment rates and both the tax wedge and social security contributions in OECD economies. These results indicate that increases in labor-related fiscal burdens systematically elevate unemployment levels, confirming the persistent and distortionary effects of labor taxation on employment outcomes. By offering a methodologically rigorous and up-to-date comparative analysis, the study contributes to the empirical literature and provides evidence-based recommendations for the design of more labor-market-friendly tax reforms.