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9 - On the Complementarity between Labour Market Regulation and Tax Reforms in the European Union
from Part II - Macroeconomic Implications of Reforms
- By Angelo Martelli, Nauro F. Campos, Michael Ganslmeier, Yuemei Ji, Orkun Saka
Edited by Nauro F. Campos, University College London, Paul De Grauwe, London School of Economics and Political Science, Yuemei Ji, University College London
Book:

Economic Growth and Structural Reforms in Europe

Published online:

31 March 2020

Print publication:

02 April 2020, pp 280-314
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Summary

One reason the effects of individual structural reforms are notoriously difficult to capture is the possibility that they depend upon other reforms and institutions. This chapter studies whether and to what extent reforms in labour market regulation are complementary to tax changes in increasing employment in the European Union (EU). We use a dynamic model of employment growth to estimate and try to disentangle the individual effects from the combined effects of these reforms using a yearly panel of EU countries from 1990 to 2015. Our estimates suggest that reform complementarity between labour market policy and taxation, through substantial and significant interaction effects, seems key to foster employment growth and enhance the effectiveness of both reforms.