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Labour taxation and employment in trade union models: A partial survey

  • Koskela , Erkki

    (University of Helsinki)

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    This paper uses a union bargaining framework, where the wage rate is negotiated between the representatives of employees and employers and firms unilaterally determine employment, to discuss the relationship between labour taxation and employment. In imperfectly competitive labour markets higher labour taxes – income and payroll taxes – will increase labour costs and have negative effects on employment. Tax progression tends to moderate wages and boost employment. Moreover, if labour tax bases are unequal due to tax exemptions, the structure of labour taxation matters so that the tax wedge may not be a sufficient statistic to describe the channel of influence of labour taxation. Finally, distortionary effects of labour taxes in more corporatist economies should be smaller than in economies with more decentralised wage bargaining. Empirical evidence – though not always very strong – supports these notions.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0119.pdf
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    Paper provided by Bank of Finland in its series Research Discussion Papers with number 19/2001.

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    Length: 32 pages
    Date of creation: 21 Sep 2001
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2001_019
    Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/

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