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Essays on Taxes and Wage Formation

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  • Lassila, Jukka
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    Abstract

    The essays in this collection approach taxation as a group of policy instruments, and study how their use is connected to and affected by wage formation in the economy. In the first essay taxation acts as an automatic stabiliser in the face of different shocks. The study combines two theoretical models from previous literature. It shows that earlier results, concerning both income tax indexation and the role of openness in deciding the optimal degree of wage indexation, do not hold under more general assumptions. In the second essay the aim of policy is to cure an acute inflation problem. The instrument is a conditional threat to increase taxes. The study develops a one-shot game describing the determination of the threat and the decisions of the unions. The article gives one possible rationalisation for the use and success of tax threat policies, and discusses reasons why this instrument is not used more often. In the third essay the aim of policies is to increase efficiency and welfare in the economy. Households and firms have fully adjusted their behaviour to the tax and transfer structure. Wages are set by majority-voting in a centralised monopoly union. The essay extends a well-known general equilibrium simulation model to include a trade union. Taxes and transfers are shown to affect the economy through dynamic channels and in a way depending significantly on wage formation.

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    This book is provided by The Research Institute of the Finnish Economy in its series ETLA A with number 32 and published in .

    Order: http://www.etla.fi/en/publications/a32-en/
    Handle: RePEc:rif:abooks:32

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    Keywords: taxation; wage formation; trade unions;

    References

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    1. Joshua Aizenman, 1983. "Wage Flexibility and Openness," NBER Working Papers 1108, National Bureau of Economic Research, Inc.
    2. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-29, November.
    3. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
    4. Jensen, Svend Erik Hougaard & Bo Nielsen, Soren & Pedersen, Lars Haagen & Sorensen, Peter Birch, 1996. "Tax policy, housing and the labour market: An intertemporal simulation approach," Economic Modelling, Elsevier, vol. 13(3), pages 355-382, July.
    5. Koskela, E. & Schob, R., 1998. "Does the Composition of Wage and Payroll Taxes Matter Under Nash Bargaining," University of Helsinki, Department of Economics 443, Department of Economics.
    6. Renström, Thomas I. & Roszbach, Kasper, 1995. "Trade unions, employee share ownership and wage setting: A supply-side approach to the share economy," Working Paper Series in Economics and Finance 65, Stockholm School of Economics.
    7. Broer, D.P. & Westerhout, E.W.M.T., 1992. "Taxation in an Intertemporal General Equilibrium Model of Small Open Economy," Papers 9212-g, Erasmus University of Rotterdam - Institute for Economic Research.
    8. Blair, Douglas H & Crawford, David L, 1984. "Labor Union Objectives and Collective Bargaining," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 547-66, August.
    9. Martin Feldstein, 1998. "Privatizing Social Security," NBER Books, National Bureau of Economic Research, Inc, number feld98-1, octubre-d.
    10. Martin Feldstein & Andrew Samwick, 1996. "The Transition Path in Privatizing Social Security," NBER Working Papers 5761, National Bureau of Economic Research, Inc.
    11. Jackman, Richard & Layard, Richard, 1990. " The Real Effects of Tax-Based Incomes Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 309-24.
    12. Bar-Ilan, Avner & Zanello, Alessandro, 1996. "On the Absence of Positive Wage Indexation," Economica, London School of Economics and Political Science, vol. 63(252), pages 687-99, November.
    13. Hawtrey, Kim, 1990. "Dynamic Behaviour of a Unionized Solow-Swan Economy," The Economic Record, The Economic Society of Australia, vol. 66(193), pages 81-92, June.
    14. Broer, Peter D. & Lassila, Jukka, . "Pension Policies and Public Debt in Dynamic CGE Models," ETLA A, The Research Institute of the Finnish Economy, number 23.
    15. Valkonen, Tarmo, . "The Finnish Corporate and Capital Income Tax Reform. A General Equilibrium Approach," ETLA A, The Research Institute of the Finnish Economy, number 29.
    16. Martin Feldstein, 1998. "Introduction to "Privatizing Social Security"," NBER Chapters, in: Privatizing Social Security, pages 1-29 National Bureau of Economic Research, Inc.
    17. Huizinga, Frederik, 1990. " An Overlapping Generations Model of Wage Determination," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(1), pages 81-98.
    18. Lassila, Jukka & Valkonen, Tarmo, 1995. "Policy Credibility in Numerical Overlapping Generations Models," Discussion Papers 545, The Research Institute of the Finnish Economy.
    19. Holmes, James M & Smyth, David J, 1972. "The Specification of the Demand for Money and the Tax Multiplier," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 179-85, Jan.-Feb..
    20. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
    21. Bruce, Neil, 1981. "Some macroeconomic effects of income tax indexation," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 271-275.
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