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Progressive taxation and wage setting when unions strategically interact

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  • Giorgio Brunello
  • Daniela Sonedda

Abstract

In a multisector economy with unionized labor markets, the interdependence of union wage claims--typical of industrial bargaining--affects the relationship between tax progressivity and wage pressure, which varies in a nonlinear fashion with the nature of the wage bargain, and can be hump-shaped. Our empirical analysis of 20 OECD countries for the period 1997--2004 shows that higher tax progressivity increases pre-tax wages (and unemployment) in countries characterized by industry level wage bargaining, and reduces them in countries with local or fully centralized bargaining. Copyright 2007, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpl027
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 59 (2007)
Issue (Month): 1 (January)
Pages: 127-140

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Handle: RePEc:oup:oxecpp:v:59:y:2007:i:1:p:127-140

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Cited by:
  1. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van Der Linden, 2013. "Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity," Working Papers halshs-00870050, HAL.
  2. Daniela Sonedda, 2006. "A structural VAR approach on labour taxation policies," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 95-114.
  3. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2003. "Average Labor Taxes and Unemployment: Evidence from Italian Regions," Economics & Statistics Discussion Papers esdp03011, University of Molise, Dept. EGSeI.
  5. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.

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