Labor Tax Burden and Competitiveness of Latvian Enterprises

Abstract

The paper addresses the issues of regional and export competitiveness of the countries in the same region with similar level of economic development with regard to labor costs borne by employers. Research results demonstrate that the country with higher labor costs shows lower export indicators both at the regional and global levels. Moreover, this country has a larger share of shadow economy. The research indicates that some enterprises in the country with higher labor costs do not fully cover personal income tax and mandatory social security contributions in order to sustain their competitiveness, whereas the companies that fully cover these taxes demonstrate lower profitability and, consequently, lower development potential, which reduces their chances to increase their regional and export competitiveness.

Keywords: Labor tax burden, Personal income tax, Regional competitiveness of enterprises, Exports, International Trade, Shadow Economy

JEL Classification: F14, H21, H24, O17