Does Centralised Wage Setting Lead into Higher Taxation
Juha Kilponen () and
Additional contact information
Pekka Sinko: Prime Minister's Office
Labor and Demography from EconWPA
This paper studies implications of centralised wage setting for the level of taxation and public expenditure in an analytical model with unionised labour markets. We extend the previous studies by allowing for both demand and supply effects of labour. Also, in addition to the standard social planner approach, we consider a political economy set up, where the tax rate is chosen to maximise the welfare of a median voter. Our results suggest that when working hours are endogenous, the relationship between the degree of centralisation and the labour tax rate is ambiguous. In particular, if the marginal utility from public provision is sufficiently low, centralised wage setting implies lower optimal tax rate on labour. This is due to a 'budgetary discipline effect', which reduces the optimal tax rate preferred by the median voter under centralised wage setting.
Keywords: Taxation; wage setting; public expenditure; median voter (search for similar items in EconPapers)
JEL-codes: J (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-pbe and nep-pol
Note: Type of Document - pdf; pages: 25
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Working Paper: Does Centralised Wage Setting Lead into Higher Taxation? (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpla:0509013
Access Statistics for this paper
More papers in Labor and Demography from EconWPA
Series data maintained by EconWPA ().