IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/21076.html
   My bibliography  Save this paper

Taxes and benefits in a non-linear wage equation

Author

Listed:
  • Graafland, J.J.
  • Huizinga, F.H.

Abstract

This paper develops a theoretical wage bargaining model, which yields a non-linear wage equation with a positive long term impact of taxes on wages as a special case. The elasticity of the replacement rate depends on the unemploy¬ment rate. The wage equation is estimated on time series data of the Netherlands. By distinguishing between short-term and long-term coefficients, we reconcile the divergence between theoretical predictions and empirical estimates of various components in the tax wedge. The last section summarizes the main findings and reviews some policy implications.

Suggested Citation

  • Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21076
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/21076/1/MPRA_paper_21076.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
    2. Ben Lockwood & Torsten Sløk & Torben Tranaes, 2000. "Progressive Taxation and Wage Setting: Some Evidence for Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 707-723, December.
    3. Charles Adams & David T. Coe, 1990. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 232-293, June.
    4. Ben Lockwood & Alan Manning, 1993. "Wage Setting and the Tax System: theory and Evidence for the UK," CEP Discussion Papers dp0115, Centre for Economic Performance, LSE.
    5. Christensen, Anders Moller & Knudsen, Dan, 1992. "MONA: A quarterly model of the Danish economy," Economic Modelling, Elsevier, vol. 9(1), pages 10-74, January.
    6. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
    7. Nickell, Stephen J, 1987. "Why Is Wage Inflation in Britain So High?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 103-128, February.
    8. Minford, Patrick, 1983. "Labour Market Equilibrium in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 207-244, Supplemen.
    9. Lockwood, Ben & Slok, Torsten & Tranaes, Torben, 2000. " Progressive Taxation and Wage Setting: Some Evidence for Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 707-723, December.
    10. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January.
    11. Dolado, J J & Malo de Molina, J L & Zabalza, A, 1986. "Spanish Industrial Unemployment: Some Explanatory Factors," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 313-334, Supplemen.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
    2. Herwig Immervoll, 2006. "Fiscal Drag – An Automatic Stabiliser?," Research in Labor Economics, in: Micro-Simulation in Action, pages 141-163, Emerald Group Publishing Limited.
    3. Peeters, Marga & Den Reijer, Ard, 2011. "On wage formation, wage flexibility and wage coordination : A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States," MPRA Paper 31102, University Library of Munich, Germany.
    4. Ruud A. De Mooij & Bas Jacobs & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," CESifo Working Paper Series 1890, CESifo.
    5. Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 193-214, October.
    6. Peter Broer & Frederik Huizinga, 2004. "Wage Moderation and Labour Productivity," Contributions to Economic Analysis, in: Fostering Productivity: Patterns, Determinants and Policy Implications, pages 141-158, Emerald Group Publishing Limited.
    7. 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.
    8. Graafland, Johan J., 2000. "Childcare subsidies, labour supply and public finance: an AGE approach," Economic Modelling, Elsevier, vol. 17(2), pages 209-246, April.
    9. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Ruud de Mooij, 2007. "Reinventing the Dutch tax-benefit system; exploring the frontier of the equity-efficiency trade-off," CPB Discussion Paper 88, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Graafland, Johan J. & de Mooij, Ruud A., 1999. "Fiscal policy and the labour market: An AGE analysis," Economic Modelling, Elsevier, vol. 16(2), pages 189-219, April.
    12. Bovenberg, A.L., 2003. "Tax Policy and Labor Market Performance," Discussion Paper 2003-90, Tilburg University, Center for Economic Research.
    13. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
    14. A. Lans Bovenberg, 1998. "Green Tax Reforms: Implications for Welfare and Distribution," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(III), pages 271-295, September.
    15. Eichhorst, Werner & Konle-Seidl, Regina & Koslowski, Alison & Marx, Paul, 2010. "Quantity over Quality? A European Comparison of the Changing Nature of Transitions between Non-Employment and Employment," IZA Discussion Papers 5285, Institute of Labor Economics (IZA).
    16. Albert van der Horst, 2003. "Structural estimates of equilibrium unemployment in six OECD economies," CPB Discussion Paper 19, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    18. Frederick Van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo.
    19. Henk Don, 2003. "SAFE: a quarterly model of the Dutch economy for short-term analyses," CPB Document 42, CPB Netherlands Bureau for Economic Policy Analysis.
    20. J. Knoben & M. Kerkhofs & J. Graafland, 2006. "Evaluation of Dutch Election Programs. The Impact of Parameter Uncertainty," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(1), pages 47-74.
    21. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and the long run? - Alfonso Arpaia and Giuseppe Carone," European Economy - Economic Papers 2008 - 2015 216, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    22. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    23. A. Bovenberg, 1999. "Green Tax Reforms and the Double Dividend: an Updated Reader's Guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 421-443, August.
    24. Henk Kranendonk & Johan Verbruggen, 2007. "SAFFIER; a multi-purpose model of the Dutch economy for short-term and medium-term analyses," CPB Document 144, CPB Netherlands Bureau for Economic Policy Analysis.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nick Zubanov & W.S. Siebert, 2009. "Management economics in a large UK retailer," CPB Discussion Paper 125.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Stephen Nickell, 1999. "Finnish unemployment : a view from outside," Finnish Economic Papers, Finnish Economic Association, vol. 12(2), pages 62-81, Autumn.
    4. repec:eee:labchp:v:3:y:1999:i:pc:p:3029-3084 is not listed on IDEAS
    5. Tyrowicz, Joanna, 2009. "When Eastern Labour Markets Enter Western Europe CEECs. Labour Market Institutions upon Euro Zone Accession," MPRA Paper 15045, University Library of Munich, Germany.
    6. Albert Jan Hummel & Bas Jacobs, 2018. "Optimal Income Taxation in Unionized Labor Markets," CESifo Working Paper Series 7188, CESifo.
    7. Aronsson, Thomas & Wikström, Magnus, 2011. "Optimal Tax Progression: Does it Matter if Wage Bargaining is Centralized or Decentralized?," Umeå Economic Studies 829, Umeå University, Department of Economics.
    8. Pia Rattenhuber, 2012. "Marginal Taxes: A Good or a Bad for Wages?: The Incidence of the Structure of Income and Labor Taxes on Wages," Discussion Papers of DIW Berlin 1193, DIW Berlin, German Institute for Economic Research.
    9. Giorgio Brunello & Maria Laura Parisi & Daniela Sonedda, 2002. "Labor Taxes and Wages: Evidence from Italy," CESifo Working Paper Series 715, CESifo.
    10. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van der Linden, 2016. "Beyond the labour income tax wedge: the unemployment-reducing effect of tax progressivity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 454-489, June.
    11. Hummel, Albert Jan & Jacobs, Bas, 2023. "Optimal income taxation in unionized labor markets," Journal of Public Economics, Elsevier, vol. 220(C).
    12. Forslund, Anders & Gottfries, Nils & Westermark, Andreas, 2005. "Real and nominal wage adjustment in open economies," Working Paper Series 2005:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    13. Marc van der Steeg & Roel van Elk & Dinand Webbink, 2012. "Does intensive coaching reduce school dropout?," CPB Discussion Paper 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Giorgio Brunello & Daniela Sonedda, 2002. "Labor Tax Progressivity, Wage Determination, and the Relative Wage Effect," CESifo Working Paper Series 721, CESifo.
    15. Yannick L'horty & Christophe Rault, 2003. "Why Is French Equilibrium Unemployment So High? an Estimation of the Ws-Ps Model," Journal of Applied Economics, Taylor & Francis Journals, vol. 6(1), pages 127-156, May.
    16. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Kjell Erik Lommerud & Bjørn Sandvik & Odd Rune Straume, 2004. "Good Jobs, Bad Jobs and Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 703-720, December.
    18. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    19. Dalin, Torbjörn & Stage, Jesper, 2011. "The effects of capital income taxation on wage formation," Economics Letters, Elsevier, vol. 113(2), pages 186-188.
    20. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    21. Chun‐Chieh Huang & Juin‐Jen Chang & Hsiao‐Wen Hung, 2020. "Progressive Tax and Inequality in a Unionized Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 38-80, January.

    More about this item

    Keywords

    Wage equation; bargaining model; tax wedge; non-linearity;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:21076. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.