TAXATION AND THE STRUCTURE OF LABOR-MARKETS - THE CASE OF CORPORATISM

We propose an explanation for the wide variation in rates of taxation across developed economies, based on differences in labor market insti tutions. In ''corporatist'' economies, which feature centralized labor markets, taxes on labor input will be less distortionary than when la bor supply is determined individually. Since the level of labor supply is set by a small group of decision-makers, these individuals will re cognize the linkage between the taxes that workers pay and the benefit s that they receive. Labor tax burdens are indeed higher in more corpo ratist nations, while nonlabor taxes are actually lower. There is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies.