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A Cross-Country Analysis of the Tax-Push Hypothesis

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  • Fiorella Padoa-Schioppa

Abstract

This paper presents a microeconomic theoretical model of union optimizing behavior which is then used to test the relevance of the tax-push hypothesis for wage formation in nine Western European countries. Two factors—the compensation and the progressivity effects—are shown by the model to account for the effect (if any) of tax rates on wage formation. A wage equation tested for the period 1960-1988 shows that in general small open economies have negligible compensation and progressivity effects, while in larger economies direct, indirect and social security tax rates are transferred onto the real labor cost. All countries show a weakening of the tax shifting starting at the end of the 1970s or the beginning of the 1980s.

Suggested Citation

  • Fiorella Padoa-Schioppa, 1992. "A Cross-Country Analysis of the Tax-Push Hypothesis," IMF Working Papers 1992/011, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1992/011
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    Cited by:

    1. repec:eee:labchp:v:3:y:1999:i:pc:p:3029-3084 is not listed on IDEAS
    2. Stephen Nickell, 2003. "Employment and Taxes," CESifo Working Paper Series 1109, CESifo.
    3. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and in the long run?," Public Economics 0411004, University Library of Munich, Germany.
    4. Tyrväinen, Timo, 1995. "Wage determination in the long run, real wage resistance and unemployment : Multivariate analysis of cointegrating relations in 10 OECD economies," Research Discussion Papers 12/1995, Bank of Finland.
    5. repec:zbw:bofrdp:1995_012 is not listed on IDEAS

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