On the Provision of Public Goods in an Economy with Union Wage Setting and Distortionary Taxation

Thomas Aronsson (), Löfgren, Karl-Gustaf () and Tomas Sjögren ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Löfgren, Karl-Gustaf: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 581, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper concerns public good provision under distortionary labor income taxation. The labor market is characterized by imperfect competition due to the influence of unions over wage formation. We show that a tradeoff between employment and hours of work per employee influences the welfare effect of an increase in the provision of the public good. This tradeoff means that the welfare gain of an increase in the hours of work, which is associated with the preexisting labor income tax, will be counteracted by a welfare cost in terms of lost employment. We also show how the welfare effect of an increase in the provision of the public good depends on whether the unions are able to directly affect the hours of work per employed union member, or if this influence only comes indirectly via the wage rate.

Keywords: Public goods; distortionary taxation; union wage setting. (search for similar items in EconPapers)
JEL-codes: H41 J51 J60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pke
Date: 2002-02-04

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