The Impact of Progressive Income Tax Rates on Canadian Negotiated Wage Rates

Douglas Auld and David A. Wilton

Canadian Journal of Economics, 1988, vol. 21, issue 2, 279-84

Abstract: This paper provides econometric evidence, based on 2,215 wage contracts signe d during the 1967-75 period, on the extent to which the tax increases attributable to the progressivity of the Canadian income tax system were forward shifted into higher wage settlements. Based on a wage de termination model, which includes inflation expectations, price catch up for uncompensated past inflation, and labor market conditions, the results suggest that the progressivity of the Canadian income tax sy stem significantly affected wage settlements and that the implicit ta x increases attributable to this progressivity were at least partiall y forward shifted into higher wage rates.

Date: 1988
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