Optimal tax progressivity in unionised labour markets; what are the driving forces?

Stefan Boeters

No 129, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: In labour markets with collective wage bargaining, progressivity of the labour income tax creates a trade-off that allows the degree of progressivity to be determined optimally. 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.

JEL-codes: H21 J22 J51 J64 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cmp, nep-lab and nep-pub
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal tax progressivity in unionised labour markets: What are the driving forces? (2011)
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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