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Progressive Taxation, Wage Bargaining, and Endogenous Working Time

Claus Thustrup Hansen
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Claus Thustrup Hansen: Institute of Economics, University of Copenhagen

Authors registered in the RePEc Author Service: Claus Thustrup Kreiner

No 96-14, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper analyses the impact of tax reforms that decrease income tax progression in an equilibrium search model with wage bargaining and endogenous individual working time. The working time is either bargained together with the hourly wage (case 1) or determined solely by workers after bargaining over the wage (case 2). In both cases reducing tax progression increases working time of employed and, more interestingly, increases unambiguously wages and unemployment. Wages and unemployment rise more and working time and production less in case 1 compared to case 2; probably making case 2 countries best suited for such tax reforms.

Keywords: progressive taxes; wage bargaining; labour supply; search model (search for similar items in EconPapers)
JEL-codes: H24 J22 J41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 1996-11
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