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Taxes and benefits in a non-linear wage equation

Author

Listed:
  • Graafland, J.J.
  • Huizinga, F.H.

Abstract

This paper develops a theoretical wage bargaining model, which yields a non-linear wage equation with a positive long term impact of taxes on wages as a special case. The elasticity of the replacement rate depends on the unemploy¬ment rate. The wage equation is estimated on time series data of the Netherlands. By distinguishing between short-term and long-term coefficients, we reconcile the divergence between theoretical predictions and empirical estimates of various components in the tax wedge. The last section summarizes the main findings and reviews some policy implications.

Suggested Citation

  • Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21076
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    File URL: https://mpra.ub.uni-muenchen.de/21076/1/MPRA_paper_21076.pdf
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    7. Dolado, J J & Malo de Molina, J L & Zabalza, A, 1986. "Spanish Industrial Unemployment: Some Explanatory Factors," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 313-334, Supplemen.
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    Citations

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    Cited by:

    1. Bovenberg, A.L., 2003. "Tax Policy and Labor Market Performance," Discussion Paper 2003-90, Tilburg University, Center for Economic Research.
    2. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
    3. A. Lans Bovenberg, 1998. "Green Tax Reforms: Implications for Welfare and Distribution," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(III), pages 271-295, September.
    4. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
    5. Immervoll, H., 2000. "Fiscal Drag - An Automatic Stabiliser?," Cambridge Working Papers in Economics 0025, Faculty of Economics, University of Cambridge.
    6. Peeters, Marga & Den Reijer, Ard, 2011. "On wage formation, wage flexibility and wage coordination : A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States," MPRA Paper 31102, University Library of Munich, Germany.
    7. Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 193-214, October.
    8. Ruud A. De Mooij & Bas Jacobs & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," CESifo Working Paper Series 1890, CESifo Group Munich.
    9. Free Huizinga & Peter Broer, 2004. "Wage moderation and labour productivity," CPB Discussion Paper 28, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Albert van der Horst, 2003. "Structural Estimates of Equilibrium Unemployment in Six OECD Economies," Economics Working Papers 022, European Network of Economic Policy Research Institutes.
    11. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Graafland, Johan J., 2000. "Childcare subsidies, labour supply and public finance: an AGE approach," Economic Modelling, Elsevier, vol. 17(2), pages 209-246, April.
    13. Ruud de Mooij, 2004. "Towards efficient unemployment insurance in the Netherlands," CPB Memorandum 100, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Frederick Van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo Group Munich.
    15. Peeters, H.M.M. & Den Reijer, A.H.J., 2008. "ON WAGE FORMATION, WAGE DEVELOPMENT AND FLEXIBILITY: A comparison between European countries and the United States," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 59-74.
    16. Ruud Mooij, 2008. "Reinventing the Dutch tax-benefit system: exploring the frontier of the equity-efficiency trade-off," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(1), pages 87-103, February.
    17. Henk Don, 2003. "SAFE: a quarterly model of the Dutch economy for short-term analyses," CPB Document 42, CPB Netherlands Bureau for Economic Policy Analysis.
    18. J. Knoben & M. Kerkhofs & J. Graafland, 2006. "Evaluation of Dutch Election Programs. The Impact of Parameter Uncertainty," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature, vol. 0(1), pages 47-74.
    19. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and the long run? - Alfonso Arpaia and Giuseppe Carone," European Economy - Economic Papers 2008 - 2015 216, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    20. Graafland, Johan J. & de Mooij, Ruud A., 1999. "Fiscal policy and the labour market: An AGE analysis," Economic Modelling, Elsevier, vol. 16(2), pages 189-219, April.
    21. Alfonso Arpaia & Giuseppe Carone, 2004. "Do labour taxes (and their composition) affect wages in the short and in the long run?," Public Economics 0411004, University Library of Munich, Germany.
    22. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    23. A. Bovenberg, 1999. "Green Tax Reforms and the Double Dividend: an Updated Reader's Guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 421-443, August.
    24. H.M.M. Peeters & A.H.J. den Reijer, 2002. "On Wage Formation, Wage Development and Unemployment Flexibility: a Comparison between European Countries and the United States," WO Research Memoranda (discontinued) 712, Netherlands Central Bank, Research Department.
    25. Henk Kranendonk & Johan Verbruggen, 2007. "SAFFIER; a multi-purpose model of the Dutch economy for short-term and medium-term analyses," CPB Document 144, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

    Wage equation; bargaining model; tax wedge; non-linearity;

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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