Labor Income Tax and Output in a Panel of Central and Eastern European Countries: A Long-Run Perspective

<Para ID="Par1">The goal of this empirical paper is to investigate the impact of labor income taxes on long-run output. The study makes use of annual data from seven European South-Eastern countries, i.e., Albania, Bulgaria, Czech Republic, Croatia, Former Yugoslav Republic of Macedonia, Hungary, Romania, Poland, Serbia, Slovakia and Slovenia, spanning the period 1999–2012, along with the methodology of panel cointegration. The empirical findings display that there exists a negative and statistically significant correlation between labor income taxes and output in the long-run. The implications seem crucial for designing an efficient and growth oriented fiscal policy in the countries that plan to join the Eurozone at a future point of time. Copyright International Atlantic Economic Society 2015