Labour Taxation, Tax Progression and Job Matching - Comparative Alternative Models of Wage Setting
AbstractIn this paper we consider the effects of labour taxation on wages, unemployment and efficiency in a job matching framework. We derive labour market equilibrium with taxes in a model of endogenous job creation and job destruction under three alternative hypothesis of wage formation: Nash bargain, monopoly union and efficiency wages. We find that labour taxes harm employment irrespective of the wage formation mechanism. However, employment turns out to be much less sensitive to taxation in the models involving wage bargaining. Our results also suggest that increased progression in labour taxation may improve employment with low or even non-existent efficiency cost if wages are set in a bargaining framework.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 285.
Date of creation: 21 Nov 2002
Date of revision:
Find related papers by JEL classification:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- C00 - Mathematical and Quantitative Methods - - General - - - General
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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