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Fiscal-monetary policy interactions in the presence of unionized labor markets

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  • Alex Cukierman
  • Alberto Dalmazzo

Abstract

This paper develops a framework for studying the interactions between labor unions, fiscal policy, monetary policy and monopolistically competitive firms. The framework is used to investigate the effects of labor taxes, the replacement ratio, labor market institutions and monetary policymaking institutions on economic peformance in the presence of strategic interactions between labor unions and the central bank. Given fiscal variables, higher levels of either centralization of wage bargaining, or of central bank conservativeness are associated with lower unemployment and inflation. However the forward shifting of changes in either labor taxes or in unemployment benefits to labors costs is larger the higher are those institutional variables. The paper also considers the effects of those institutions on the choice of labor taxes and of unemployment benefits by governments concerned with the costs of inflation and unemployment, as well as with redistribution to particular constituencies. A main result is that, normally, higher levels of centralization and conservativeness induce government to set higher labor taxes. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Alex Cukierman & Alberto Dalmazzo, 2006. "Fiscal-monetary policy interactions in the presence of unionized labor markets," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 411-435, August.
  • Handle: RePEc:kap:itaxpf:v:13:y:2006:i:4:p:411-435
    DOI: 10.1007/s10797-006-9245-8
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    Cited by:

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    2. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    3. Cukierman, Alex & Dalmazzo, Alberto, 2007. "Fiscal Policy, Labor Unions, Competitiveness and Monetary Institutions: Their Long Run Impact on Unemployment, Inflation and Welfare," Kiel Working Papers 1338, Kiel Institute for the World Economy (IfW Kiel).
    4. Giovanni Di Bartolomeo, 2014. "Optimal Degree of Union Centralization," Studies in Microeconomics, , vol. 2(2), pages 201-211, December.

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    More about this item

    Keywords

    Labor taxes; Unemployment benefits; Central bank conservativeness; Collective wage bargaining; Redistribution; Unemployment; inflation; Competitiveness;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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