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Progressive Taxation Under Centralised Wage Setting

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  • Sinko, Pekka

Abstract

The study reconsiders the effects of tax progression in imperfectly competitive labour markets. Allowing for the individual supply of working hours, we show that the results derived in the standard model of decentralised wage bargaining do not hold if the wage setting is centralised or highly coordinated. We show that increased progression is more likely to harm employment if either i) the initial tax system is progressive or ii) the wage setting is centralised or co-ordinated. If the wage setting institutions are centralised or strongly co-ordinated, increased progression may be bad for employment even when departing from a proportional tax system.

Suggested Citation

  • Sinko, Pekka, 2004. "Progressive Taxation Under Centralised Wage Setting," Discussion Papers 349, Government Institute for Economic Research Finland (VATT).
  • Handle: RePEc:fer:dpaper:349
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    File URL: https://www.doria.fi/handle/10024/148327
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    References listed on IDEAS

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    1. Fuest, Clemens & Huber, Bernd, 2000. "Is tax progression really good for employment? A model with endogenous hours of work," Labour Economics, Elsevier, vol. 7(1), pages 79-93, January.
    2. Sinko, Pekka & Kilponen Juha, 2001. "Labour Taxation and the Degree of Centralisation in a Trade Union Model with Endogenous Labour Supply," Discussion Papers 250, Government Institute for Economic Research Finland (VATT).
    3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, April.
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    5. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398, November.
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    7. Driffill, John & van der Ploeg, Frederick, 1993. "Monopoly Unions and the Liberalisation of International Trade," Economic Journal, Royal Economic Society, vol. 103(417), pages 379-385, March.
    8. Blomquist, Soren & Christiansen, Vidar, 1998. "Topping Up or Opting Out? The Optimal Design of Public Provision Schemes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 399-411, May.
    9. Hansen, Claus Thustrup & Pedersen, Lars Haagen & Slok, Torsten, 2000. "Ambiguous effects of tax progressivity -- theory and Danish evidence," Labour Economics, Elsevier, vol. 7(3), pages 335-347, May.
    10. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence," Papers 15, Uppsala - Working Paper Series.
    11. Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
    12. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
    13. 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.
    14. Kiander, Jaakko & Kilponen, Juha & Vilmunen, Jouko, 2004. "Labor taxation, public finance, and wage determination: evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 20(4), pages 983-999, November.
    15. Jakobsson, Ulf, 1976. "On the measurement of the degree of progression," Journal of Public Economics, Elsevier, pages 161-168.
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    Cited by:

    1. Alho, Kari O. E., 2006. "Labour Market Institutions and the Effectiveness of Tax and Benefit Policies in Enchancing Employment: A General Equilibrium Analysis," Discussion Papers 1008, The Research Institute of the Finnish Economy.

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