By Maximilian Clarke

Targeted tax reform is the key to boosting jobs growth across Europe as the continent struggles with a worsening employment crisis, the Organisation for Economic Cooperation and Development advise.

High taxes on employers, the Paris-based economic institution argue in their latest report, Tax Policy Study No 21: Taxation and Employment, discourages them from working whilst high taxes on workers reduces take-home pay and discourages work. Cutting taxes across the board would undoubtedly stimulate a rise in employment, though would in the short term undermine governments’ commitments to reducing their deficits.

Governments should instead implement targeted tax cuts in optimal areas to ensure the highest jobs growth with the smallest drop in government tax revenue.

The Study suggests that governments should consider tax cuts for employers who hire low-skilled workers - particularly youth and the long-term unemployed. “By lowering the cost of hiring these workers, tax cuts can reduce unemployment amongst the groups hardest hit by the crisis”, said Jeffrey Owens, Director of OECD’s Centre for Tax Policy and Administration.

To give all people an incentive to work, the report proposes a number of reforms targeted at three groups that tend to be under-represented in labour markets across the world: low-income workers; second earners (generally women); older workers. Analysis suggests tax reform would improve incentives and encourage them to work.


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