Progressive Taxation Under Centralised Wage Setting

Pekka Sinko

No 349, Discussion Papers from VATT Institute for Economic Research

Abstract: The study reconsiders the effects of tax progression in imperfectly competitive labour markets. Allowing for the individual supply of working hours, we show that the results derived in the standard model of decentralised wage bargaining do not hold if the wage setting is centralised or highly coordinated. We show that increased progression is more likely to harm employment if either i) the initial tax system is progressive or ii) the wage setting is centralised or co-ordinated. If the wage setting institutions are centralised or strongly co-ordinated, increased progression may be bad for employment even when departing from a proportional tax system.

Keywords: Tax progression; wage setting; employment.; Labour market; Työmarkkinat; Taxation; Verotus; Effectiveness of public services; Julkisten palvelujen vaikuttavuus; C100 - Econometric and Statistical Methods: General; H200 - Taxation; Subsidies; and Revenue: General; J300 - Wages; Compensation; and Labor Costs: General (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
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Citations: View citations in EconPapers (6)

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