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Optimal Factor Taxation under Wage Bargaining - A Dynamic Perspective

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  • Erkki Koskela
  • Leopold von Thadden

Abstract

We consider the issue of steady-state optimal factor taxation in a Ramsey-type dynamic general equilibrium setting with two distinct distortions: i) taxes on capital and labour are the only available tax instruments for raising revenues, and ii) labour markets are subject to a static inefficiency resulting from wage bargaining. If considered in isolation, under broad assumptions the two distortions create conflicting demands on the wage tax, while calling for a zero capital tax. By combining the two distortions, we arrive at the conclusion that both instruments should be used, implying that the zero-capital tax result in general is no longer valid under imperfectly competitive labour markets.

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  • Erkki Koskela & Leopold von Thadden, 2003. "Optimal Factor Taxation under Wage Bargaining - A Dynamic Perspective," CESifo Working Paper Series 836, CESifo.
    • Handle: RePEc:ces:ceswps:_836
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    4. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James, 2011. "The distributional consequences of tax reforms under market distortions," SIRE Discussion Papers 2011-73, Scottish Institute for Research in Economics (SIRE).
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    6. Erkki Koskela & Panu Poutvaara, 2008. "Outsourcing and Labor Taxation in Dual Labor Markets," CESifo Working Paper Series 2333, CESifo.
    7. Palokangas, Tapio K., 2003. "Optimal Taxation with Capital Accumulation and Wage Bargaining," IZA Discussion Papers 966, Institute of Labor Economics (IZA).
    8. Wei Jiang, 2014. "Tax Reforms in Search-and-Matching Models with Heterogeneous Agents," Studies in Economics 1414, School of Economics, University of Kent.

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    More about this item

    Keywords

    optimal taxation; imperfectly competitive labour markets; capital accumulation;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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