IDEAS home Printed from https://ideas.repec.org/a/kap/atlecj/v35y2007i2p127-143.html
   My bibliography  Save this article

On Tax Over-Shifting in Wage Bargaining Models

Author

Listed:
  • Edward Calthrop
  • Bruno Borger

Abstract

It has frequently been noted in the wage bargaining literature that increasing average labour taxes may in fact be over-shifted in the pre-tax wage that is negotiated between unions and firms, raising workers post-tax wages. In this paper, we study the precise conditions for such tax over-shifting to occur under both Nash and Right-To-Manage bargaining structures, and considering both competitive and imperfectly competitive output market conditions. In the case of competitive output markets, we derive and interpret the conditions for over-shifting to occur and show that they hold for an entire class of commonly used production functions. Moreover, under monopolistically competitive output markets we show that tax over-shifting will occur when the firm has sufficient market power. The conditions on the production function, that were necessary and sufficient for tax over-shifting to occur under perfect competition, are shown to be no longer necessary. These findings hold for all bargaining structures considered. Copyright International Atlantic Economic Society 2007

Suggested Citation

  • Edward Calthrop & Bruno Borger, 2007. "On Tax Over-Shifting in Wage Bargaining Models," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 127-143, June.
    • Handle: RePEc:kap:atlecj:v:35:y:2007:i:2:p:127-143
    DOI: 10.1007/s11293-007-9063-0
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11293-007-9063-0
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11293-007-9063-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hamilton, Stephen F., 1999. "Tax incidence under oligopoly: a comparison of policy approaches," Journal of Public Economics, Elsevier, vol. 71(2), pages 233-245, February.
    2. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September.
    3. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    4. Ben Lockwood & Alan Manning, 1993. "Wage Setting and the Tax System: theory and Evidence for the UK," CEP Discussion Papers dp0115, Centre for Economic Performance, LSE.
    5. repec:bla:econom:v:53:y:1986:i:210(s):p:s121-69 is not listed on IDEAS
    6. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
    7. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
    8. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    9. JOHN CREEDY & IAN M. McDONALD, 1991. "Models of Trade Union Behaviour: A Synthesis," The Economic Record, The Economic Society of Australia, vol. 67(4), pages 346-359, December.
    10. Koskela, Erkki & Schob, Ronnie, 1999. "Does the composition of wage and payroll taxes matter under Nash bargaining?," Economics Letters, Elsevier, vol. 64(3), pages 343-349, September.
    11. repec:bla:ecorec:v:67:y:1991:i:199:p:346-59 is not listed on IDEAS
    12. Lockwood, Ben, 1990. "Tax Incidence, Market Power, and Bargaining Structure," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 187-209, January.
    13. Bayindir-Upmann, Thorsten & Raith, Matthias G., 2003. "Should high-tax countries pursue revenue-neutral ecological tax reforms?," European Economic Review, Elsevier, vol. 47(1), pages 41-60, February.
    14. Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kory Kroft & Kavan Kucko & Etienne Lehmann & Johannes Schmieder, 2020. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," American Economic Journal: Economic Policy, American Economic Association, vol. 12(1), pages 254-292, February.
    2. Marc van der Steeg & Roel van Elk & Dinand Webbink, 2012. "Does intensive coaching reduce school dropout?," CPB Discussion Paper 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Clemens Fuest & Bernd Huber, 1997. "Wage bargaining, labor-tax progression, and welfare," Journal of Economics, Springer, vol. 66(2), pages 127-150, June.
    4. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    6. De Borger, Bruno, 2009. "Commuting, congestion tolls and the structure of the labour market: Optimal congestion pricing in a wage bargaining model," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 434-448, July.
    7. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
    8. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Pierre M. Picard & Éric Toulemonde, 2001. "De quel côté du marché du travail prélever les impôts ?. Nouveaux éléments théoriques," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 149-156.
    10. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
    12. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
    13. Stamatopoulos, Giorgos, 2019. "A strategic tax mechanism," MPRA Paper 93602, University Library of Munich, Germany.
    14. Pia Rattenhuber, 2012. "Marginal Taxes: A Good or a Bad for Wages?: The Incidence of the Structure of Income and Labor Taxes on Wages," Discussion Papers of DIW Berlin 1193, DIW Berlin, German Institute for Economic Research.
    15. Boeters, Stefan, 2011. "Optimal tax progressivity in unionised labour markets: What are the driving forces?," Economic Modelling, Elsevier, vol. 28(5), pages 2282-2295, September.
    16. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    17. Adam, Stuart & Phillips, David & Roantree, Barra, 2019. "35 years of reforms: A panel analysis of the incidence of, and employee and employer responses to, social security contributions in the UK," Journal of Public Economics, Elsevier, vol. 171(C), pages 29-50.
    18. Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2006. "Optimal Redistributive Taxation in a Search Equilibrium Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 743-767.
    19. Albert Jan Hummel, 2021. "Unemployment and tax design," Tinbergen Institute Discussion Papers 21-061/VI, Tinbergen Institute.
    20. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo.

    More about this item

    Keywords

    Bargaining models; Tax over-shifting; H20; J51;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:35:y:2007:i:2:p:127-143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.