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Ireland

Can Tax Reforms Help Create Jobs?

Sebastian Eckardt's picture

Europe faces a significant job challenge. At an average of 11 percent, unemployment remains stubbornly high while labor force participation, at 58 percent of the working age population, lags behind most other regions of the world. This means, that only every second person in working age currently has a paying job across the region. Addressing the job challenge requires multifaceted labor market policies. We argue however that reducing the tax burden on labor, which remains high across the region, holds the promise of improving labor market outcomes. Such tax cuts could especially target low-wage workers, which often face the highest marginal tax rates and very elastic labor demand and are therefore most likely to be priced out of the formal labor market.