Wage formation by majority voting and the incentive effects of pensions and taxation
We study median voter wage-setting and its dependence on pensions and taxation in a centralized monopoly union framework using a dynamic computable general equilibrium model with overlapping generations structure. We show that the higher is the earnings-related PAYG pension benefit level, the lower is the wage the voter chooses, for two reasons. Firstly, if the voter claims high current wages his lifetime wage income falls, which will lead to lower pensions, and the advantages of lower pension contributions go to future working generations. Secondly, the median voter has to pay higher contributions both because the current wage bill falls and because current pensions may increase due to indexation. Both these generational effects lead the median voter to choose lower wages, which leads to higher employment. When we compare median voter wage setting with labour markets where wages adjust to equate supply and demand, the difference is bigger when the incentives to work are stronger in the market equilibrium, and gets smaller when the incentives are weaker. When e.g. the pension benefits and the corresponding payroll tax are increased, the voting equilibrium wage level approaches the market equilibrium wage. Similar results are obtained with respect to labour and consumption taxes.
Volume (Year): 13 (2000)
Issue (Month): 2 (Autumn)
|Contact details of provider:|| Web page: http://www.taloustieteellinenyhdistys.fi|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
- Valkonen, Tarmo, 1995. "Corporate and Capital Income Tax Reform in a Numerical Overlapping Generations Model: The Case of Finland," Discussion Papers 543, The Research Institute of the Finnish Economy.
- Jensen, Svend Erik Hougaard & Bo Nielsen, Soren & Pedersen, Lars Haagen & Sorensen, Peter Birch, 1996. "Tax policy, housing and the labour market: An intertemporal simulation approach," Economic Modelling, Elsevier, vol. 13(3), pages 355-382, July.
- Koskela, Erkki & Schob, Ronnie, 1999.
"Does the composition of wage and payroll taxes matter under Nash bargaining?,"
Elsevier, vol. 64(3), pages 343-349, September.
- Erkki Koskela & Ronnie Schöb, 1999. "Does the Composition of Wage and Payroll Taxes Matter Under Nash Bargaining?," Discussion Papers 203, Government Institute for Economic Research Finland (VATT).
- Koskela, E. & Schob, R., 1998. "Does the Composition of Wage and Payroll Taxes Matter Under Nash Bargaining," University of Helsinki, Department of Economics 443, Department of Economics.
- Broer, D. P. & Westerhout, E. W. M. T., 1993.
"Taxation in an intertemporal general equilibrium model of a small open economy,"
Elsevier, vol. 10(1), pages 64-80, January.
- Broer, D.P. & Westerhout, E.W.M.T., 1992. "Taxation in an Intertemporal General Equilibrium Model of Small Open Economy," Papers 9212-g, Erasmus University of Rotterdam - Institute for Economic Research.
- Costas Azariadis & Vincenzo Galasso, 1996.
"Discretion, rules and volatility,"
Federal Reserve Bank of St. Louis, issue May, pages 65-74.
- 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.
- Kenneth R. Beauchemin, 1998. "Intergenerational Politics, Fiscal Policy and Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 835-858, October.
- Renström, Thomas I. & Roszbach, Kasper, 1995. "Trade unions, employee share ownership and wage setting: A supply-side approach to the share economy," SSE/EFI Working Paper Series in Economics and Finance 65, Stockholm School of Economics.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Lassila, Jukka & Valkonen, Tarmo, 1995. "Policy Credibility in Numerical Overlapping Generations Models," Discussion Papers 545, The Research Institute of the Finnish Economy.
- Keuschnigg, Christian & Kohler, Wilhelm, 1994. "Modeling Intertemporal General Equilibrium: An Application to Austrian Commercial Policy," Empirical Economics, Springer, vol. 19(1), pages 131-64.
- Andrew Oswald & Ian Walker, 1993. "Labour supply, contract theory and unions," IFS Working Papers W93/21, Institute for Fiscal Studies.
- Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
- Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
- Broer, D. Peter & Lassila, Jukka, . "Pension Policies and Public Debt in Dynamic CGE Models," ETLA A, The Research Institute of the Finnish Economy, number 23, June.
- Hawtrey, Kim, 1990. "Dynamic Behaviour of a Unionized Solow-Swan Economy," The Economic Record, The Economic Society of Australia, vol. 66(193), pages 81-92, June.
- Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1994. "A monopoly-union model of wage determination with capital and taxes: An empirical application to the Finnish manufacturing," European Economic Review, Elsevier, vol. 38(2), pages 285-303, February.
- Huizinga, Frederik, 1990. " An Overlapping Generations Model of Wage Determination," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(1), pages 81-98.
- Douglas H. Blair & David L. Crawford, 1984. "Labor Union Objectives and Collective Bargaining," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 547-566.
When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:13:y:2000:i:2:p:89-115. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.