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Labor Taxes and Wages: Evidence from Italy

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Author Info
Brunello, Giorgio
Parisi, Maria Laura
Sonedda, Daniela

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Abstract

We study the empirical relationship between labor taxation and pretax wages in Italy. We find that higher tax progressivity increases pretax wages. To explain this result, we introduce in an informal way a relative wage effect and argue that the combination of this effect with the labor supply effect dominates the wage moderation effect. We find also evidence that changes in payroll taxes are not fully absorbed by offsetting changes in the pretax wage and affect labor costs and employment. The evidence on the effect of the average income tax rate on pretax wages is more mixed, but it also points to the presence of some degree of real wage resistance. Finally, we find significant differences in the relationship between labor taxes and pretax wages by age group but not by skill or region of residence.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 715.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_715

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Related research
Keywords: progressive taxation; wage determination; Italy;

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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    Other versions:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lommerud, Kjell Erik & Sandvik, Bjorn & Staume, Odd Rune, 2003. "Good Jobs, Bad Jobs and Redistribution," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and in the long run?," Public Economics 0411004, EconWPA. [Downloadable!]
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