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Progressive Taxation, Wage Bargaining, and Endogenous Working Time

Author

Listed:
  • Claus Thustrup Hansen

    (Institute of Economics, University of Copenhagen)

Abstract

This paper analyses the impact of tax reforms that decrease income tax progression in an equilibrium search model with wage bargaining and endogenous individual working time. The working time is either bargained together with the hourly wage (case 1) or determined solely by workers after bargaining over the wage (case 2). In both cases reducing tax progression increases working time of employed and, more interestingly, increases unambiguously wages and unemployment. Wages and unemployment rise more and working time and production less in case 1 compared to case 2; probably making case 2 countries best suited for such tax reforms.

Suggested Citation

  • Claus Thustrup Hansen, 1996. "Progressive Taxation, Wage Bargaining, and Endogenous Working Time," Discussion Papers 96-14, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9614
    as

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    More about this item

    Keywords

    progressive taxes; wage bargaining; labour supply; search model;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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