Labour Taxation and Its Impact on Employment Growth

The paper aims to assess the characteristics of labour taxation for fivedifferent groups of workers and labour market performance (in termsof employment and unemployment rate) in the EU and to examinewhether tax wedge affects employment growth in the EU. The descriptiveempirical estimates show that the level of labour taxation variesgreatly across EU Member States, by which the tax wedge tends to behigher among NewMember States (excluding Cyprus andMalta). Furthermore,the panel regression analyses confirm statistically significantnegative relationship between tax wedge and employment growth inthe EU as a whole. Therefore, the empirical analysis suggests that theEU-27 should continue with the trend of reducing tax wedge, as thiswould have favourable effects on labour market performance, especiallyamong New Member States.