Taxes and benefits in a non-linear wage equation

Johan Graafland and F.H. Huizinga

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a theoretical wage bargaining model, which yields a non-linear wage equation with a positive long term impact of taxes on wages as a special case. The elasticity of the replacement rate depends on the unemploy¬ment rate. The wage equation is estimated on time series data of the Netherlands. By distinguishing between short-term and long-term coefficients, we reconcile the divergence between theoretical predictions and empirical estimates of various components in the tax wedge. The last section summarizes the main findings and reviews some policy implications.

Keywords: Wage equation; bargaining model; tax wedge; non-linearity (search for similar items in EconPapers)
JEL-codes: H39 J32 J38 J52 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (24)

Published in De Economist 1.147(1999): pp. 39-54

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