Taxation and the Structure of Labor Markets: The Case of Corporatism

42 Pages Posted: 4 Jul 2004 Last revised: 12 Aug 2010

See all articles by Lawrence H. Summers

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Rodrigo Vergara

National Bureau of Economic Research (NBER)

Date Written: May 1992

Abstract

We propose an explanation for the wide variation in rates of taxation across developed economies, based on differences in labor market institutions. In "corporatist" economies, which feature centralized labor markets, taxes on labor input will be less distortionary than when labor supply is determined individually. Since the level of labor supply is set by a small group of decision-makers, these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive. Labor tax burdens are indeed higher in more corporatist nations, and non-labor taxes are lower, which is consistent with this theory. There is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies.

Suggested Citation

Summers, Lawrence H. and Gruber, Jonathan and Vergara, Rodrigo, Taxation and the Structure of Labor Markets: The Case of Corporatism (May 1992). NBER Working Paper No. w4063. Available at SSRN: https://ssrn.com/abstract=226885

Lawrence H. Summers (Contact Author)

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Jonathan Gruber

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National Bureau of Economic Research (NBER)

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Rodrigo Vergara

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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