Monopsony Amplifies Distortions from Progressive Taxes

David Berger, Kyle Herkenhoff, Simon Mongey and Negin Mousavi

AEA Papers and Proceedings, 2024, vol. 114, 555-60

Abstract: Progressive income taxes distort hiring and wages when firms have labor market power. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits.

JEL-codes: G22 H22 H25 J23 J31 J41 J42 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Monopsony Amplifies Distortions from Progressive Taxes (2023)
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DOI: 10.1257/pandp.20241002

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