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Institute of Public Finance

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The Influence of the Tax Wedge on Unemployment in OECD Countries in Comparison with Croatia

Anamarija Šeparović, Zagrebačka banka, Zagreb, Croatia

The tax wedge is the difference between the employer's labour costs and the net takehome pay of the employee. An increase in the tax wedge leads to an increase in the companies' labour costs and thus indirectly influences the level of unemployment. This article will try to answer these questions: Does the tax wedge affect the unemployment rate, how high is the tax wedge in Croatia in comparison with OECD countries, how does the tax wedge affect the unemployment rate in Croatia and would reducing the tax wedge be a solution to reduce unemployment? This article will show that Croatia is a country with a high tax wedge, which has negative affects on employment, and is partly "responsible" for the high unemployment. Thus, in dealing with unemployment problems, Croatia should work on its reduction.

Keywords:  tax wedge, unemployment rate, labour costs, Croatia, OECD

Year:  2009   |   Volume:  33   |   Issue:  4   |   Pages:  463 - 477

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 December, 2009
IV / 2009
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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