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Wage Determination under Non-linear Taxes: Estimation and an Application to Panel Data

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  • Aronsson, Thomas
  • Wikstrom, Magnus
  • Brannlund, Runar

Abstract

This paper studies wage determination under piecewise linear taxes in a unionized labor market. The purpose of the paper is to model how piecewise linear taxation affects the choice set of the union and to take this information into account in the estimation. The empirical application is based on panel data. Piecewise linear taxes necessitates formal assumptions about the sources of randomness, and the authors find that both unobserved heterogeneity and measurement errors in the wage rate are important to consider in the estimation. The authors also find that taxes are likely to have a nonnegligible impact on the (pre-tax) wage rate. Copyright 1997 by Royal Economic Society.

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  • Aronsson, Thomas & Wikstrom, Magnus & Brannlund, Runar, 1997. "Wage Determination under Non-linear Taxes: Estimation and an Application to Panel Data," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 404-418, July.
    • Handle: RePEc:oup:oxecpp:v:49:y:1997:i:3:p:404-18
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    Cited by:

    1. Martin T. Robson & Colin Wren, 1999. "Marginal and Average Tax Rates and the Incentive for Self‐Employment," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 757-773, April.
    2. Aronsson, Thomas & Wikström, Magnus, 2011. "Optimal Tax Progression: Does it Matter if Wage Bargaining is Centralized or Decentralized?," Umeå Economic Studies 829, Umeå University, Department of Economics.
    3. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
    4. Schneider, Kerstin, 2005. "Union wage setting and progressive income taxation with heterogeneous labor: theory and evidence from the German income tax reforms 1986-1990," Labour Economics, Elsevier, vol. 12(2), pages 205-222, April.
    5. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Thomas Aronsson & Karl‐Gustaf Löfgren & Tomas Sjögren, 2001. "Union Wage Setting and Capital Income Taxation in Dynamic General Equilibrium," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 141-175, May.
    7. Marc van der Steeg & Roel van Elk & Dinand Webbink, 2012. "Does intensive coaching reduce school dropout?," CPB Discussion Paper 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    8. Alain de Crombrugghe & Gregory de Walque, 2011. "Wage and employment effects of a wage norm : The Polish transition experience," Working Paper Research 209, National Bank of Belgium.

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