Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?
AbstractDoes an income tax harm economic efficiency more the more progressive it is? Public economics provides a strong case for a definite "yes." But at least three forces may pull in the other direction. First, low-wage workers may on average have more elastic labour supply schedules than high-wage workers, in which case progressive taxes contribute to a more efficient allocation of the total tax burden. Second, in non-competitive labour markets, progressive taxes may encourage wage moderation, and hence reduce the equilibrium level of unemployment. And third, if wage setters have egalitarian objectives, progressive taxes may reduce the need for redistribution in pre-tax wages, and hence increase the demand for low-skilled workers. This paper surveys the theoretical, as well as the empirical literature about labour supply, taxes and wage setting. We conclude that in a second best world, the trade-off between equality and efficiency is not always inevitable. Copyright 2002 by Blackwell Publishers Ltd
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Oslo University, Department of Economics in its series Memorandum with number 19/1999.
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
Other versions of this item:
- Roed, Knut & Strom, Steinar, 2002. " Progressive Taxes and the Labour Market: Is the Trade-Off between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 77-110, February.
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
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.:
- Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
- G. Burtless & J. A. Hausman, 1977.
"The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment,"
211, Massachusetts Institute of Technology (MIT), Department of Economics.
- Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
- William T. Dickens & Shelly J. Lundberg, 1985.
"Hours Restrictions and Labor Supply,"
NBER Working Papers
1638, National Bureau of Economic Research, Inc.
- Ben Lockwood & Torsten Sloek & Torben Tranaes, .
"Progressive Taxation and Wage Setting: Some Evidence for Denmark,"
EPRU Working Paper Series
95-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Lockwood, Ben & Slok, Torsten & Tranaes, Torben, 2000. " Progressive Taxation and Wage Setting: Some Evidence for Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 707-23, December.
- Robert A. Moffitt & Mark Wilhelm, 1998.
"Taxation and the Labor Supply: Decisions of the Affluent,"
NBER Working Papers
6621, National Bureau of Economic Research, Inc.
- Robert A Moffitt & Mark Wilhelm, 2000. "Taxation and the Labor Supply - Decisions of the Affluent," Economics Working Paper Archive 414, The Johns Hopkins University,Department of Economics.
- Holmlund, B. & Kolm, A.S., 1995.
"Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence,"
15, Uppsala - Working Paper Series.
- Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
- Thomas Mroz, .
"The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions,"
University of Chicago - Population Research Center
84-8, Chicago - Population Research Center.
- Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July.
- Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
- Richard Jackman & Richard Layard & Marco Manacorda & Barbara Petrongolo, 1997. "European versus US Unemployment: Different Responses to Increased Demand for skill?," CEP Discussion Papers dp0349, Centre for Economic Performance, LSE.
- Blackburn, McKinley & Neumark, David, 1992.
"Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials,"
The Quarterly Journal of Economics,
MIT Press, vol. 107(4), pages 1421-36, November.
- McKinley Blackburn & David Neumark, 1991. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," NBER Working Papers 3857, National Bureau of Economic Research, Inc.
- Jon Strand, 2002. "Effects of Progressive Taxes under Decentralized Bargaining and Heterogeneous Labor," International Tax and Public Finance, Springer, vol. 9(2), pages 195-210, March.
- Paul Krugman, 1994.
"Past and prospective causes of high unemployment,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
- Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-33, December.
- Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
- Layard, R. & Nickell, S., 1991.
"Unemployment in the OECD Countries,"
Economics Series Working Papers
99130, University of Oxford, Department of Economics.
- Wulfsberg, F., 1996. "Do Progressive Taxes Reduce Wage Pressure?," Memorandum 38/1996, Oslo University, Department of Economics.
- Robert K. Triest, 1993. "The Efficiency Cost of Increased Progressivity," NBER Working Papers 4535, National Bureau of Economic Research, Inc.
- Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, vol. 13(4), pages 595-621.
- 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.
- Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
- Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
- Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
- Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers 8, OECD Publishing.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Ebert,Udo, 1987.
"Global tax progressivity,"
Discussion Paper Serie A
109, University of Bonn, Germany.
- Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Heckman, James J, 1978. "A Partial Survey of Recent Research on the Labor Supply of Women," American Economic Review, American Economic Association, vol. 68(2), pages 200-207, May.
- Hammond,Peter, 1988.
"Theoretical progress in public economics: A provocative assessment,"
Discussion Paper Serie A
171, University of Bonn, Germany.
- Hammond, Peter J, 1990. "Theoretical Progress in Public Economics: A Provocative Assessment," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 6-33, January.
- Ilmakunnas, Seija & Pudney, Stephen, 1990. "A model of female labour supply in the presence of hours restrictions," Journal of Public Economics, Elsevier, vol. 41(2), pages 183-210, March.
- Dagsvik, J.K. & Laisney, F. & Strom, S. & Ostervold, J., 1988.
"Female Labour Supply And The Tax Benefit System In France,"
04/1988, Oslo University, Department of Economics.
- John K. DAGSVIK & François LAISNEY & Steinar STROM & Jannike OSTERVOLD, 1988. "Female Labour Supply and the Tax Benefit System in France," Annales d'Economie et de Statistique, ENSAE, issue 11, pages 5-40.
- Arrufat, Jose Luis & Zabalza, Antonio, 1986. "Female Labor Supply with Taxation, Random Preferences, and Optimization Errors," Econometrica, Econometric Society, vol. 54(1), pages 47-63, January.
- Ian Walker, 1990. "The effects of income support measures on the labour market behaviour of lone mothers," Fiscal Studies, Institute for Fiscal Studies, vol. 11(2), pages 55-75, May.
- Browning, Edgar K & Johnson, William R, 1984. "The Trade-Off between Equality and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 175-203, April.
- Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rhiana Bergh-Seeley).
If references are entirely missing, you can add them using this form.