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Union Wage Setting and Capital Income Taxation in Dynamic General Equilibrium

  • Thomas Aronsson
  • Karl-Gustaf Löfgren
  • Tomas Sjögren

This paper concerns the effects of capital income taxation in a dynamic general equilibrium framework with union wage setting, when households face taxes related to both labor and capital. One purpose is to characterize the general equilibrium solution. Another is to study the effects of increased capital income taxation - in terms of the responses in real wages, employment, capital stock, output and consumption - and relate these behavioral responses to the overall tax structure. We also derive a cost-benefit rule for the purpose of analyzing the welfare effects of a small shift from labor income taxation to capital income taxation. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 2 (2001)
Issue (Month): 2 (05)
Pages: 141-175

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Handle: RePEc:bla:germec:v:2:y:2001:i:2:p:141-175
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  1. 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.
  2. Turnovsky, Stephen J, 1992. "Alternative Forms of Government Expenditure Financing: A Comparative Welfare Analysis," Economica, London School of Economics and Political Science, vol. 59(234), pages 235-52, May.
  3. Bovenberg, A.L. & van der Ploeg, F., 1994. "Green policies in a small open economy," Other publications TiSEM 31842095-d9e5-4693-ab81-4, Tilburg University, School of Economics and Management.
  4. Layard, Richard, 1982. "Is Incomes Policy the Answer to Unemployment?," Economica, London School of Economics and Political Science, vol. 49(195), pages 219-39, August.
  5. Bovenberg, A Lans & van der Ploeg, Frederick, 1994. " Green Policies and Public Finance in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 343-63.
  6. Bovenberg, A.L. & van der Ploeg, F., 1992. "Environmental policy, public finance and the labour market in a second-best world," Discussion Paper 1992-43, Tilburg University, Center for Economic Research.
  7. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  8. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  9. Aronsson, Thomas & Wikstrom, Magnus & Brannlund, Runar, 1997. "Wage Determination under Non-linear Taxes: Estimation and an Application to Panel Data," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 404-18, July.
  10. Calmfors, Lars, 1985. "Work sharing, employment and wages," European Economic Review, Elsevier, vol. 27(3), pages 293-309.
  11. Hoel, M., 1989. "Income Taxes And Non-Market Clearing Wages," Memorandum 09/1989, Oslo University, Department of Economics.
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