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Charity and redistributive taxation in a unionized economy

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  • Corneo, Giacomo

Abstract

European economies are characterized by unionized labor markets and a pronounced governmental redistribution of income. This paper studies a model where those two features are combined with the possibility for individuals to make charitable contributions to the poor. The model exhibits equilibrium unemployment that increases with the degree of altruism. It is shown that a more progressive income tax can both reduce the unemployment rate and improve the public budget. These results are driven by charity increasing wage pressure and the altruistic rich failing to internalize the effect of their donations on the wage setting behavior of the unions. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2006/21.

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Date of creation: 2006
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Handle: RePEc:zbw:fubsbe:200621

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Keywords: Equilibrium Unemployment; Income Tax; Charity; Trade Unions;

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  1. Ferris, J Stephen & West, Edwin G, 2003. " Private versus Public Charity: Reassessing Crowding Out from the Supply Side," Public Choice, Springer, vol. 116(3-4), pages 399-417, September.
  2. Robert A Moffitt & Mark Wilhelm, 2000. "Taxation and the Labor Supply - Decisions of the Affluent," Economics Working Paper Archive 414, The Johns Hopkins University,Department of Economics.
  3. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2006. "Top Incomes and Top Taxes in Germany," CESifo Working Paper Series 1641, CESifo Group Munich.
  4. 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.
  5. Sandmo, Agnar, 1983. " Progressive Taxation, Redistribution, and Labor Supply," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(3), pages 311-23.
  6. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
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