Tax-overshifting in wage bargaining models
It has frequently been noted in the wage bargaining literature that increasing average labour taxes may in fact be over-shifted in the pre-tax wage that is negotiated between unions and firms, raising workers post-tax wages. In this paper, we study the precise conditions for such tax over-shifting to occur under several different bargaining structures, and considering both competitive and imperfectly competitive output market conditions. In the case of competitive output markets and Nash bargaining over wages and employment, over-shifting is shown to hold for an entire class of commonly used concave production functions for which the divergence between marginal and average product is increasing in employment. Under right-to-manage bargaining, tax over-shifting is shown to depend on the curvature of the labour demand curve and on the wage elasticity of the firm’s profits relative to the wage elasticity of labour demand. We further show that, under plausible assumptions, tax over-shifting is more likely to occur under monopolistically competitive output markets than under perfect competition; this holds for all bargaining models considered.
|Date of creation:|
|Contact details of provider:|| Postal: Prinsstraat 13, B-2000 Antwerpen|
Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ant:wpaper:2004020. 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: (Joeri Nys)
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.