Is There Scope for Gains from Revenue-Neutral Labor Tax Reforms with Flexible Outsourcing?

Erkki Koskela and Panu Poutvaara

No 3984, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study the effects of revenue-neutral labor tax reforms in an imperfectly competitive domestic labor market under Nash wage bargaining and flexible outsourcing. A revenue-neutral increase in the wage tax progression will decrease the negotiated wage rate, increase domestic labor demand and decrease international outsourcing. In the presence of wage tax exemption, a lower payroll tax and a higher wage tax will increase domestic labor demand and decrease international outsourcing. The effect on the negotiated wage rate is positive with sufficiently strong labor market imperfections, and ambiguous with sufficiently weak labor market imperfections.

Keywords: flexible outsourcing; wage bargaining; employment; tax-revenue neutral labor tax reforms (search for similar items in EconPapers)
JEL-codes: H11 H22 J41 J51 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-01
New Economics Papers: this item is included in nep-lab and nep-pub
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Citations: View citations in EconPapers (3)

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