Institutions and the rise of taxes on labour in the OECD

The aim of this paper is to explain differences among OECD countries in the evolution of taxes on labour during the last two decades. Its main message is that these taxes are to an important extent structurally and institutionally determined. Tax rates on labour are shown to have risen more strongly in countries where: (i) government has been controlled mainly by leftist parties; (ii) taxes (in general) are decided and collected mainly by central government (fiscal centralization); (iii) coalition and minority governments are frequent; (iv) the partisan composition (political colour) of these coalitions is unstable; (v) the labour market is neither centralized nor decentralized.