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Is There Scope for Gains from Revenue-Neutral Labor Tax Reforms with Flexible Outsourcing?

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Author Info
Koskela, Erkki () (University of Helsinki)
Poutvaara, Panu () (University of Helsinki)

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Abstract

We study the effects of revenue-neutral labor tax reforms in an imperfectly competitive domestic labor market under Nash wage bargaining and flexible outsourcing. A revenue-neutral increase in the wage tax progression will decrease the negotiated wage rate, increase domestic labor demand and decrease international outsourcing. In the presence of wage tax exemption, a lower payroll tax and a higher wage tax will increase domestic labor demand and decrease international outsourcing. The effect on the negotiated wage rate is positive with sufficiently strong labor market imperfections, and ambiguous with sufficiently weak labor market imperfections.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3984.

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Length: 34 pages
Date of creation: Jan 2009
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Handle: RePEc:iza:izadps:dp3984

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Related research
Keywords: flexible outsourcing; wage bargaining; employment; tax-revenue neutral labor tax reforms;

Find related papers by JEL classification:
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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  1. 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). [Downloadable!]
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This page was last updated on 2009-11-23.

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