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Is the Optimal Labor Income Tax Progressive in a Unionized Economy?

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Author Info

  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    ()
    (Department of Economics, Umeå University)

Abstract

This paper concerns optimal nonlinear labor income taxation in an economy with union wage setting and endogenous hours of work. The government is assumed to act in accordance with a utilitarian objective function. The main purpose of the paper is to study the determinants of tax progression and, in particular, to relate tax progression to the choice of work hours. We show how the optimal degree of tax progression depends on the incentives underlying the choice of work hours, as well as on whether or not the government can monitor the wage rate via tax policy. If the wage rate is chosen by the union member with median seniority, in which case the wage rate will be fixed under certain conditions, the marginal tax rate is unambiguously positive and the tax structure unambiguously progressive. If, on the other hand, the union acts according to the utilitarian framework, we can no longer in general rule out regressive tax systems. We also show that the tax system is more likely to be progressive if the individual union members freely choose their hours of work conditional on the wage rate, than if the union is able to directly affect the hours of work per employee.

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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 587.

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Length: 18 pages
Date of creation: 24 Apr 2002
Date of revision:
Handle: RePEc:hhs:umnees:0587

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Keywords: Optimal taxation; labor supply; union wage setting;

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References

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  1. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
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Citations

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Cited by:
  1. Aronsson, Thomas & Sjögren, Tomas, 2005. "Externalities, Border Trade and Illegal Production: An Optimal Tax Approach to Alcohol Policy," UmeÃ¥ Economic Studies 654, Umeå University, Department of Economics.
  2. Thomas Aronsson, 2005. "Environmental Policy, Efficient Taxation and Unemployment," International Tax and Public Finance, Springer, vol. 12(2), pages 131-144, March.
  3. Aronsson, Thomas & Wikström, Magnus, 2011. "Optimal Tax Progression: Does it Matter if Wage Bargaining is Centralized or Decentralized?," UmeÃ¥ Economic Studies 829, Umeå University, Department of Economics.
  4. Aronsson, Thomas & Koskela, Erkki, 2009. "Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment," IZA Discussion Papers 4196, Institute for the Study of Labor (IZA).
  5. Thomas Aronsson & Erkki Koskela, 2008. "Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment," CESifo Working Paper Series 2481, CESifo Group Munich.
  6. Aronsson, Thomas & Koskela, Erkki, 2008. "Optimal Redistributive Taxation and Provision of Public Input Goods in an Economy with Outsourcing and Unemployment," UmeÃ¥ Economic Studies 759, Umeå University, Department of Economics.
  7. Thomas Aronsson & Tomas Sjögren & Torbjörn Dalin, 2009. "Optimal taxation and redistribution in an OLG model with unemployment," International Tax and Public Finance, Springer, vol. 16(2), pages 198-218, April.
  8. Aronsson, Thomas & Persson, Lars & Sjögren, Tomas, 2006. "Optimal Taxation and Transboundary Externalities - Are Endogenous World Market Prices Important?," UmeÃ¥ Economic Studies 699, Umeå University, Department of Economics.
  9. Aronsson, Thomas, 2007. "General Income Taxation, Public Goods and Decentralized Leadership," UmeÃ¥ Economic Studies 715, Umeå University, Department of Economics.
  10. Lai, Ching-Chong & Liao, Chih-Hsing, 2012. "Optimal nonlinear income taxation with productive government expenditure," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 66-77.
  11. Aronsson, Thomas & Jonsson, Thomas & Sjögren, Tomas, 2006. "Environmental Policy and Optimal Taxation in a Decentralized Economic Federation," UmeÃ¥ Economic Studies 669, Umeå University, Department of Economics.
  12. Aronsson, Thomas & Löfgren, Karl-Gustaf, 2007. "Welfare Theory: History and Modern Results," UmeÃ¥ Economic Studies 726, Umeå University, Department of Economics.
  13. Thomas Aronsson & James R. Walker, 2010. "Labor Supply, Tax Base and Public Policy in Sweden," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 127-158 National Bureau of Economic Research, Inc.
  14. Aronsson, Thomas & Wehke, Sven, 2008. "Public goods, unemployment and policy coordination," Regional Science and Urban Economics, Elsevier, vol. 38(3), pages 285-298, May.
  15. Aronsson, Thomas & Sjögren, Tomas, 2006. "Optimal Income Taxation and Social Norms in the Labor Market," UmeÃ¥ Economic Studies 672, Umeå University, Department of Economics.
  16. Aronsson, Thomas, 2010. "Optimal income taxation and decentralized fiscal federalism," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 187-195, July.

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