Tax progression under collective wage bargaining and individual effort determination

Die Wirkung progressiver Besteuerung bei kollektiven Lohnverhandlungen und unbeobachtbarem individuellen Arbeitseinsatz

Erkki Koskela and Ronnie Schöb
Authors registered in the RePEc Author Service: Ronnie Schoeb

Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: In this paper, we study the impact of tax policy on wage negotiations, workers’ effort, and employment when effort is only imperfectly observable. We show that the different wage-setting motives – rent sharing and effort incentives – reinforce the effects of partial tax policy measures but not necessarily those of more fundamental tax reforms. We show that a higher degree of tax progression always leads to wage moderation, but the well-established result from the wage bargaining literature that a revenue-neutral increase in the degree of tax progression is good for employment does not carry over to the case with wage negotiations and imperfectly observable effort. While it remains true that introducing tax progression increases employment, we cannot rule out negative employment effects from an increase in tax progression when tax progression is already very high.

Keywords: Wage bargaining; effort determination; tax progression (search for similar items in EconPapers)
JEL-codes: H22 J41 J51 (search for similar items in EconPapers)
Date: 2006
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https://www.econstor.eu/bitstream/10419/51077/1/526582804.pdf (application/pdf)

Related works:
Journal Article: Tax Progression under Collective Wage Bargaining and Individual Effort Determination (2012)
Working Paper: Tax Progression under Collective Wage Bargaining and Individual Effort Determination (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmpg:spii200613

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