Optimal tax progressivity in unionised labour markets: What are the driving forces?

Stefan Boeters

Economic Modelling, 2011, vol. 28, issue 5, 2282-2295

Abstract: In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal level of tax progressivity within this trade-off is determined using a numerical general equilibrium model with imperfect competition on the goods market, collective wage bargaining and a labour-supply module calibrated to empirically plausible elasticity values. The model is calibrated to macroeconomic and institutional parameters of both the OECD average and a number of individual OECD countries. In most cases the optimal degree of tax progressivity is below the actual level. A decomposition approach shows that the optimal level is increased by high unemployment and by the general tax level.

Keywords: Labour; taxation; Tax; progressivity; Optimal; taxation; Collective; wage; bargaining; Unemployment (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Optimal tax progressivity in unionised labour markets; what are the driving forces? (2009)
Working Paper: Optimal tax progressivity in unionised labour markets: what are the driving forces? (2009)
Working Paper: Optimal Tax Progressivity in Unionised Labour Markets: What are the Driving Forces? (2008)
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