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Taxes and benefits in a non-linear wage equation

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  • 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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21076.

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Date of creation: 1998
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Publication status: Published in De Economist 1.147(1999): pp. 39-54
Handle: RePEc:pra:mprapa:21076

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Related research

Keywords: Wage equation; bargaining model; tax wedge; non-linearity;

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References

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  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
  2. Ben Lockwood & Torsten Sloek & Torben Tranaes, . "Progressive Taxation and Wage Setting: Some Evidence for Denmark," EPRU Working Paper Series 95-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Adams, Charles & Coe, David T., 1989. "A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States," MPRA Paper 8622, University Library of Munich, Germany.
  4. Minford, Patrick, 1983. "Labour Market Equilibrium in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 207-44, Supplemen.
  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. 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 S313-34, Supplemen.
  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 103-28, February.
  8. 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.
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