Progressive taxes and the labour market : is the trade-off between equality and efficiency inevitable?
Does an income tax harm economic efficiency more the more progressive it is? Public economics provides a strong case for a definite "yes." But at least three forces may pull in the other direction. First, low-wage workers may on average have more elastic labour supply schedules than high-wage workers, in which case progressive taxes contribute to a more efficient allocation of the total tax burden. Second, in non-competitive labour markets, progressive taxes may encourage wage moderation, and hence reduce the equilibrium level of unemployment. And third, if wage setters have egalitarian objectives, progressive taxes may reduce the need for redistribution in pre-tax wages, and hence increase the demand for low-skilled workers. This paper surveys the theoretical, as well as the empirical literature about labour supply, taxes and wage setting. We conclude that in a second best world, the trade-off between equality and efficiency is not always inevitable. Copyright 2002 by Blackwell Publishers Ltd
(This abstract was borrowed from another version of this item.)
|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas Mroz, .
"The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions,"
University of Chicago - Population Research Center
84-8, Chicago - Population Research Center.
- Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July.
- Ben Lockwood & Torsten Sloek & Torben Tranaes, .
"Progressive Taxation and Wage Setting: Some Evidence for Denmark,"
EPRU Working Paper Series
95-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Lockwood, Ben & Slok, Torsten & Tranaes, Torben, 2000. " Progressive Taxation and Wage Setting: Some Evidence for Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 707-23, December.
- Ugo Colombino & Steinar Strøm & Rolf Aaberge, 2000. "Labor supply responses and welfare effects from replacing current tax rules by a flat tax: Empirical evidence from Italy, Norway and Sweden," Journal of Population Economics, Springer, vol. 13(4), pages 595-621.
- Paul Krugman, 1994.
"Past and prospective causes of high unemployment,"
Federal Reserve Bank of Kansas City, issue Q IV, pages 23-43.
- Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
- Layard, R. & Nickell, S., 1991.
"Unemployment in the OECD Countries,"
Economics Series Working Papers
99130, University of Oxford, Department of Economics.
- Hammond,Peter, 1988.
"Theoretical progress in public economics: A provocative assessment,"
Discussion Paper Serie A
171, University of Bonn, Germany.
- Hammond, Peter J, 1990. "Theoretical Progress in Public Economics: A Provocative Assessment," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 6-33, January.
- Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
- Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
- Jon Strand, 2002. "Effects of Progressive Taxes under Decentralized Bargaining and Heterogeneous Labor," International Tax and Public Finance, Springer, vol. 9(2), pages 195-210, March.
- John K. DAGSVIK & François LAISNEY & Steinar STROM & Jannike OSTERVOLD, 1988.
"Female Labour Supply and the Tax Benefit System in France,"
Annales d'Economie et de Statistique,
ENSAE, issue 11, pages 5-40.
- Dagsvik, J.K. & Laisney, F. & Strom, S. & Ostervold, J., 1988. "Female Labour Supply And The Tax Benefit System In France," Memorandum 04/1988, Oslo University, Department of Economics.
- Heckman, James J, 1978. "A Partial Survey of Recent Research on the Labor Supply of Women," American Economic Review, American Economic Association, vol. 68(2), pages 200-207, May.
- Udo Ebert, 1992.
"Global Tax Progressivity,"
Public Finance Review,
, vol. 20(1), pages 77-92, January.
- Browning, Edgar K & Johnson, William R, 1984. "The Trade-Off between Equality and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 175-203, April.
- Dickens, William T & Lundberg, Shelly J, 1993.
"Hours Restrictions and Labor Supply,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February.
- Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
- Richard Jackman & Richard Layard & Marco Manacorda & Barbara Petrongolo, 1997. "European versus US Unemployment: Different Responses to Increased Demand for skill?," CEP Discussion Papers dp0349, Centre for Economic Performance, LSE.
- Arrufat, Jose Luis & Zabalza, Antonio, 1986. "Female Labor Supply with Taxation, Random Preferences, and Optimization Errors," Econometrica, Econometric Society, vol. 54(1), pages 47-63, January.
- Richard W. Blundell, 1995. "The Impact of Taxation on Labour Force Participation and Labour Supply," OECD Jobs Study Working Papers 8, OECD Publishing.
- Ilmakunnas, Seija & Pudney, Stephen, 1990. "A model of female labour supply in the presence of hours restrictions," Journal of Public Economics, Elsevier, vol. 41(2), pages 183-210, March.
- Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
- McKinley Blackburn & David Neumark, 1991.
"Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials,"
NBER Working Papers
3857, National Bureau of Economic Research, Inc.
- Blackburn, McKinley & Neumark, David, 1992. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1421-36, November.
- Burtless, Gary & Hausman, Jerry A, 1978.
"The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments,"
Journal of Political Economy,
University of Chicago Press, vol. 86(6), pages 1103-30, December.
- G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ian Walker, 1990. "The effects of income support measures on the labour market behaviour of lone mothers," Fiscal Studies, Institute for Fiscal Studies, vol. 11(2), pages 55-75, May.
- Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
- Wulfsberg, F., 1996. "Do Progressive Taxes Reduce Wage Pressure?," Memorandum 38/1996, Oslo University, Department of Economics.
- Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-33, December.
- Robert A Moffitt & Mark Wilhelm, 2000.
"Taxation and the Labor Supply - Decisions of the Affluent,"
Economics Working Paper Archive
414, The Johns Hopkins University,Department of Economics.
- Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
- Robert K. Triest, 1993. "The Efficiency Cost of Increased Progressivity," NBER Working Papers 4535, National Bureau of Economic Research, Inc.
- Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Holmlund, B. & Kolm, A.S., 1995.
"Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence,"
15, Uppsala - Working Paper Series.
- Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Hersoug, Tor, 1984. "Union Wage Responses to Tax Changes," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 37-51, March.
- Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
- 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.
When requesting a correction, please mention this item's handle: RePEc:hhs:osloec:1999_019. 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: (Rhiana Bergh-Seeley)
If references are entirely missing, you can add them using this form.