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Labour taxation and employment in trade union models: A partial survey

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Author Info

  • Koskela , Erkki

    (University of Helsinki)

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    Abstract

    This paper uses a union bargaining framework, where the wage rate is negotiated between the representatives of employees and employers and firms unilaterally determine employment, to discuss the relationship between labour taxation and employment. In imperfectly competitive labour markets higher labour taxes – income and payroll taxes – will increase labour costs and have negative effects on employment. Tax progression tends to moderate wages and boost employment. Moreover, if labour tax bases are unequal due to tax exemptions, the structure of labour taxation matters so that the tax wedge may not be a sufficient statistic to describe the channel of influence of labour taxation. Finally, distortionary effects of labour taxes in more corporatist economies should be smaller than in economies with more decentralised wage bargaining. Empirical evidence – though not always very strong – supports these notions.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0119.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 19/2001.

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    Length: 32 pages
    Date of creation: 21 Sep 2001
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2001_019

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: union bargaining; labour taxation; tax progression;

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    Cited by:
    1. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    2. Christoph Boehringer & Stefan Boeters & Michael Feil, 2004. "Taxation and Unemployment: An Applied General Equilibrium Approach," CESifo Working Paper Series 1272, CESifo Group Munich.
    3. Houben, Henriette & Baumgarten, Jörg, 2011. "Krankt das deutsche Steuersystem am Mittelstandsbauch und der kalten Progession?," arqus Discussion Papers in Quantitative Tax Research 119, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Jan-Egbert Sturm & Bjørn Volkerink, 2003. "How to Measure the Tax Burden on Labour at the Macro-Level?," CESifo Working Paper Series 963, CESifo Group Munich.
    5. Alho, Kari O. E., 2006. "Labour Market Institutions and the Effectiveness of Tax and Benefit Policies in Enchancing Employment: A General Equilibrium Analysis," Discussion Papers 1008, The Research Institute of the Finnish Economy.
    6. Alho, Kari, 2002. "The Equilibrium Rate of Unemployment and Policies to Lower It: The Case of Finland," Discussion Papers 839, The Research Institute of the Finnish Economy.
    7. 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.

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