Bargaining Frictions, Labor Income Taxation and Economic Performance

Stéphane Auray and Samuel Danthine

No 2008-1, Working Papers from Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center

Abstract: 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.

Keywords: models of search and matching; bargaining frictions; economic performance; labor market institutions; part-time jobs; labor market rigidities (search for similar items in EconPapers)
JEL-codes: E24 J22 J30 J41 J50 J64 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008-03
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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https://theeconomics.uma.es/malagawpseries/Papers/METCwp2008-1.pdf First version, 2008 (application/pdf)

Related works:
Journal Article: Bargaining frictions, labor income taxation, and economic performance (2010)
Working Paper: Bargaining Frictions, Labor Income Taxation, and Economic Performance (2009)
Working Paper: Bargaining Frictions, Labor Income Taxation and Economic Performance (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:mal:wpaper:2008-1

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