DOES LABOUR MARKET TAXATION MATTER?

The paper analyses whether differences in the labour market and employment rates in the EU member countries can be explained by different labour taxation. In the paper the macro level cross country data characterizing labour market in 2007 and 2012 are used. The cluster analysis is applied to obtain groups of countries with similar labour market indicators. In the following step the labour taxation is compared within those groups. To represent labour taxation four indicators are used - implicit tax rate and ratio of personal taxation to GDP as possibilities how to measure wage taxation; ratio of social security contribution to GDP to measure non-wage labour burden; and one alternative indicator - unemployment trap - is presented. The results suggest that labour markets characterised by similar labour market performance did not have alike taxation in 2007 and in the case of the most indicators the groups are more heterogeneous than EU member countries as a whole. The situation is slightly different in 2012 when the countries with similar labour market characteristics show also similar labour taxation.