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Progressive Taxation and Wage Setting when Unions Strategically Interact

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  • Giorgio Brunello

    ()
    (University of Padua)

  • Daniela Sonedda

    (Universita' del Piemonte Orientale)

Abstract

In a multisector economy with unionized labor markets, the interdependence of union wage claims - typical of industrial bargaining - affects the relationship between tax progressivity and wage pressure, which varies in a nonlinear fashion with the nature of the wage bargain, and can be hump-shaped. Our empirical analysis of 20 OECD countries for the period 1997-2004 shows that higher tax progressivity increases pre-tax wages (and unemployment) in countries characterized by industry level wage bargaining, and reduces them in countries with local or fully centralized bargaining.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0017.

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Length: 21 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:pad:wpaper:0017

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Cited by:
  1. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van der Linden, 2013. "Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity," CESifo Working Paper Series 4348, CESifo Group Munich.
  2. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2003. "Average Labor Taxes and Unemployment: Evidence from Italian Regions," Economics & Statistics Discussion Papers esdp03011, University of Molise, Dept. EGSeI.
  4. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Daniela Sonedda, 2006. "A structural VAR approach on labour taxation policies," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 95-114.

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