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Charity and redistributive taxation in a unionized economy

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  • Corneo, Giacomo

Abstract

European economies are characterized by unionized labor markets and a pronounced governmental redistribution of income. This paper studies a model where those two features are combined with the possibility for individuals to make charitable contributions to the poor. The model exhibits equilibrium unemployment that increases with the degree of altruism. It is shown that a more progressive income tax can both reduce the unemployment rate and improve the public budget. These results are driven by charity increasing wage pressure and the altruistic rich failing to internalize the effect of their donations on the wage setting behavior of the unions.

Suggested Citation

  • Corneo, Giacomo, 2006. "Charity and redistributive taxation in a unionized economy," Discussion Papers 2006/21, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:200621
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    References listed on IDEAS

    as
    1. 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.
    2. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2005. "Top Incomes and Top Taxes in Germany," Discussion Papers of DIW Berlin 532, DIW Berlin, German Institute for Economic Research.
    3. Sandmo, Agnar, 1983. " Progressive Taxation, Redistribution, and Labor Supply," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(3), pages 311-323.
    4. 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.
    5. 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.
    6. Ferris, J Stephen & West, Edwin G, 2003. "Private versus Public Charity: Reassessing Crowding Out from the Supply Side," Public Choice, Springer, vol. 116(3-4), pages 399-417, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Equilibrium Unemployment; Income Tax; Charity; Trade Unions;

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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