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Taxation And Centralised Wage Setting: The Case Of Endogenous Labour Supply

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  • Juha Kilponen
  • Pekka Sinko

Abstract

The implications of centralised wage setting for the relationship between taxation, wages and employment are studied allowing for endogenous adjustment in work hours. We show that centralisation promotes wage moderation, makes wages and employment less sensitive to changes in wage taxation and reduces the hours worked. With an individual supply of working hours, a wage tax can even improve employment if wage setting is centralised and marginal utility from a public good is sufficiently high. Moreover, if a profit tax is used to finance public expenditure, higher tax reduces wages and improves employment. Copyright (c) Scottish Economic Society 2005.

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 52 (2005)
Issue (Month): 4 (09)
Pages: 587-606

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Handle: RePEc:bla:scotjp:v:52:y:2005:i:4:p:587-606

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Cited by:
  1. Dittrich, Marcus, 2006. "Welfare Effects of Union Bargaining Centralisation in a Two-Sector Economy," MPRA Paper 11, University Library of Munich, Germany, revised Sep 2006.
  2. Horst Feldmann, 2011. "The Unemployment Puzzle of Corporate Taxation," Public Finance Review, , vol. 39(6), pages 743-769, November.
  3. Alexis, PARMENTIER, 2006. "The effects of the marginal tax rate in a matching model with endogenous labor supply," Discussion Papers (ECON - Département des Sciences Economiques) 2006011, Université catholique de Louvain, Département des Sciences Economiques.
  4. Pekka Sinko, 2007. "Labour taxation, job creation and job destruction—Focusing on the role of wage setting," International Tax and Public Finance, Springer, vol. 14(5), pages 583-604, October.

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