IMPACT OF TAX WEDGE AND SOCIAL SECURITY CONTRIBUTIONS ON THE UNEMPLOYMENT: EVIDENCE FROM SELECTED EU TRANSITION ECONOMIES

Authors : Ömer Faruk ÖZTÜRK

Pages : 59-77

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Publication Date : 2021-12-31

Article Type : Research Paper

Abstract :The unemployment is one of the main economic problems for all the counties with different dimensions. Therefore, extensive studies have been conducted on the determinants of unemployment. This research explored the role of tax wedge and social security contributions on unemployment in selected EU transition economies over the 2000-2019 period through causality and cointegration tests. The causality analysis revealed a bilateral causality between tax wedge and unemployment and a unilateral causality from social security contributions to the unemployment. Furthermore, the cointegration analysis revealed that social security contributions positively affected the unemployment in the long run for the whole panel, but tax wedge did not have a significant impact on the unemployment. In addition to this, the country level cointegration coefficients revealed that tax wedge raised the unemployment in Lithuania, Poland, Slovak Republic, and Slovenia, and the social security contributions had a positive impact on the unemployment in Estonia, Hungary, Latvia, and Lithuania.
Keywords : Tax wedge, Social security contributions, unemployment, panel cointegration analysis, panel causality analysis

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