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Bargaining Frictions, Labor Income Taxation and Economic Performance

  • Stéphane Auray


    (Department of Economic, Université Charles-de-Gaulle lille 3)

  • Samuel Danthine


    (Department of Economic Theory, Universidad de Málaga
    Department of Economics, Université du Québec à Montréal)

A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment, (iii) differences in the proportion of part{time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capita, employment, part-time work and hours worked, but the higher is GDP per hour worked. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hours and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation. In this configuration,the level of employment is similar in both economies but the share of part-time work is larger.

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Paper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2008-1.

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Length: 38 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:mal:wpaper:2008-1
Contact details of provider: Postal: Plaza del Ejido s/n 29071, Málaga
Phone: 952131196
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