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Progressive Taxation and Wage Setting: Some Evidence for Denmark

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  • Ben Lockwood
  • Torsten Sløk
  • Torben Tranaes

Abstract

The proposition that a progressive tax system contributes to wage moderation is studied using Danish earnings data disaggregated by occupation, gender and earnings level. Our main conclusions are that income‐tax progression affects wage setting, but whether it moderates or exaggerates wage pressure is income dependent. An increase in progressivity reduces the pre‐tax earnings of middle‐income workers (manual male workers and moderate income earners among both male and female non‐manual workers). The reverse is found for high‐income earners (non‐manual male workers), in that an increase in progressivity tends to raise pre‐tax earnings. Finally, there is no significant effect of tax progressivity on the wages of low‐income earners. JEL classification: H3; J3; J5; J6

Suggested Citation

  • 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.
    • Handle: RePEc:bla:scandj:v:102:y:2000:i:4:p:707-723
    DOI: 10.1111/1467-9442.00222
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    Cited by:

    1. 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.
    2. Holmlund Bertil & Söderström Martin, 2011. "Estimating Dynamic Income Responses to Tax Reform," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-38, November.
    3. Holmlund, Bertil & Söderström, Martin, 2008. "Estimating dynamic income responses to tax reforms: Swedish evidence," Working Paper Series 2008:28, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Xu Zifei & Tang Xiaoxu & Cui Yan, 2009. "The Effect of Tax Policy Choices on the Labor Market on the Perspective of Global Governance," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 16(2), pages 316-327, June.
    5. 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.
    6. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
    7. 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.
    8. 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.
    9. Thomas Aronsson & James R. Walker, 2010. "Labor Supply, Tax Base and Public Policy in Sweden," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 127-158, National Bureau of Economic Research, Inc.
    10. Giorgio Brunello & Maria Laura Parisi & Daniela Sonedda, 2002. "Labor Taxes and Wages: Evidence from Italy," CESifo Working Paper Series 715, CESifo.
    11. Vidar Christiansen & Ray Rees, 2018. "Optimal Taxation in a Unionised Economy," CESifo Working Paper Series 6954, CESifo.
    12. Albert Jan Hummel & Bas Jacobs, 2018. "Optimal Income Taxation in Unionized Labor Markets," Tinbergen Institute Discussion Papers 18-064/VI, Tinbergen Institute.
    13. Sonedda, Daniela, 2006. "Macroeconomics effects of progressive taxation in a unionized economy," Economic Modelling, Elsevier, vol. 23(1), pages 110-130, January.
    14. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
    15. Bo Sandemann Rasmussen, "undated". "Efficiency Wages and the Long-Run Incidence of Progressive Taxation," Economics Working Papers 2001-5, Department of Economics and Business Economics, Aarhus University.
    16. Giorgio Brunello & Daniela Sonedda, 2002. "Labor Tax Progressivity, Wage Determination, and the Relative Wage Effect," CESifo Working Paper Series 721, CESifo.
    17. 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.
    18. Hummel, Albert Jan & Jacobs, Bas, 2023. "Optimal income taxation in unionized labor markets," Journal of Public Economics, Elsevier, vol. 220(C).
    19. Dalin, Torbjörn & Stage, Jesper, 2011. "The effects of capital income taxation on wage formation," Economics Letters, Elsevier, vol. 113(2), pages 186-188.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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