Optimal Tax Progression: Does it Matter if Wage Bargaining is Centralized or Decentralized?
AbstractWe study how the optimal use of labor income tax progression depends on whether the wage bargaining system is decentralized or centralized. Assuming a nonlinear labor income tax and an unrestricted profit tax, we show that a Utilitarian government is able to implement the first best resource allocation with a zero marginal labor income tax rate under decentralized wage bargaining, whereas centralized bargaining typically implies a progressive tax as well as unemployment. However, if the government and a (central) wage-setter bargain over wage formation and public policy, the resulting equilibrium is characterized by full employment and a zero marginal tax rate.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 829.
Length: 21 pages
Date of creation: 20 Jun 2011
Date of revision:
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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
Web page: http://www.econ.umu.se/
More information through EDIRC
Optimal taxation; tax progressivity; wage bargaining; corporatism;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
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