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Progressive taxation and wage setting when unions strategically interact

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  • Giorgio Brunello
  • Daniela Sonedda

Abstract

In a multisector economy with unionized labor markets, the interdependence of union wage claims--typical of industrial bargaining--affects the relationship between tax progressivity and wage pressure, which varies in a nonlinear fashion with the nature of the wage bargain, and can be hump-shaped. Our empirical analysis of 20 OECD countries for the period 1997--2004 shows that higher tax progressivity increases pre-tax wages (and unemployment) in countries characterized by industry level wage bargaining, and reduces them in countries with local or fully centralized bargaining. Copyright 2007, Oxford University Press.

Suggested Citation

  • Giorgio Brunello & Daniela Sonedda, 2007. "Progressive taxation and wage setting when unions strategically interact," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 127-140, January.
  • Handle: RePEc:oup:oxecpp:v:59:y:2007:i:1:p:127-140
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    File URL: http://hdl.handle.net/10.1093/oep/gpl027
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    Cited by:

    1. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van der Linden, 2016. "Beyond the labour income tax wedge: the unemployment-reducing effect of tax progressivity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 454-489, June.
    2. Kory Kroft & Kucko Kavan & Etienne Lehmann & Johannes Schmieder, 2015. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," Working Papers hal-01292126, HAL.
    3. Daniela Sonedda, 2009. "On the Dynamics of Unemployment and Labor Tax Progression: The Case of Italy 1974-1995," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(3), pages 271-296, September.
    4. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2003. "Average Labor Taxes and Unemployment: Evidence from Italian Regions," Economics & Statistics Discussion Papers esdp03011, University of Molise, Dept. EGSeI.
    6. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Daniela Sonedda, 2006. "A structural VAR approach on labour taxation policies," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 95-114.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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