High unemployment in many European OECD countries has been attributed to factors ranging from rigid wages and low job mobility to an interaction of high taxes and generous social benefits that may discourage labor force participation and encourage the growth of an underground economy. This CESifo volume analyzes the effect of tax policy and, more generally, welfare state incentives, on the performance of the labor market.
Today's highly complicated tax codes have led economists and policy makers depend on simplified summary measures in order to understand how taxes affect the economy. Studies of the effective tax rate—that is, a measurement of the net amount of tax levied on certain economic activities—provide this sort of descriptive summary. Using estimates of effective tax rates, economists can look for evidence of economic behavior under different tax laws and policy makers can evaluate whether the net outcome is in accord with their intentions.