Beyond national institutions : labor taxes and regional unemployment in Italy By focusing on the Italian experience we ask whether the relationshipbetween labor taxes and unemployment varies across regions. In spite of similar national labor market institutions we show that this relationship is significantly stronger in the highly industrialized North than in the under developed South where unemployment is much higher. An important source of variation in the regional responsiveness of unemployment originates from the fact that regional gross wages in the North increase more than in the South in response to a hike in labor taxes. Regional wage setting affects regional employment (and unemployment) both directly and indirectly via its impact on regional profits and the capital stock.