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Tax progression and the wage curve

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  • Hutton, John P.
  • Ruocco, Anna

Abstract

This note derives a model of the wage curve, closely following Phelps (1994) and Campbell and Orszag (1998). Phelps discusses a variety of theoretical bases for a wae curve, the two major competing types being bargaining models and efficiency wage models, though Phelps prefers the term 'incentive wage' models for the latter. The model discussed here is a parametric version of one of Phelps's incentive wage models, developed by Campell and Orszag. The innovation here is to introduce income taxation into the model, with the effect of modifying the wage curve by introducing a measure of tax progressivity into the equation of the wage curve. This result provides a link to the bargaining literature, where the same effect of progression has already been demonstrated.

Suggested Citation

  • Hutton, John P. & Ruocco, Anna, 1998. "Tax progression and the wage curve," Tübinger Diskussionsbeiträge 149, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:149
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    References listed on IDEAS

    as
    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, December.
    2. 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.
    3. 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.
    4. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, March.
    5. Campbell, Carl & Orszag, J. Michael, 1998. "A model of the wage curve," Economics Letters, Elsevier, vol. 59(1), pages 119-125, April.
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    Cited by:

    1. Schubert, Stefanie & Schnabel, Reinhold, 2009. "Curing Germany's health care system by mandatory health premia?," Journal of Health Economics, Elsevier, vol. 28(5), pages 911-923, September.

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    More about this item

    Keywords

    Wage curve; progressive taxation;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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