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Progressive Taxation Under Centralised Wage Setting

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  • Sinko, Pekka

Abstract

The study reconsiders the effects of tax progression in imperfectly competitive labour markets. Allowing for the individual supply of working hours, we show that the results derived in the standard model of decentralised wage bargaining do not hold if the wage setting is centralised or highly coordinated. We show that increased progression is more likely to harm employment if either i) the initial tax system is progressive or ii) the wage setting is centralised or co-ordinated. If the wage setting institutions are centralised or strongly co-ordinated, increased progression may be bad for employment even when departing from a proportional tax system.

Suggested Citation

  • Sinko, Pekka, 2004. "Progressive Taxation Under Centralised Wage Setting," Discussion Papers 349, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:349
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    File URL: https://www.doria.fi/handle/10024/148327
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    Cited by:

    1. Albert Jan Hummel & Bas Jacobs, 2018. "Optimal Income Taxation in Unionized Labor Markets," CESifo Working Paper Series 7188, CESifo.
    2. Michael Mitsopoulos, 2017. "Overtaxation of Private Sector Salaried Employment as a Key Impediment to the Recovery of Greece," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Dimitrios D. Thomakos & Konstantinos I. Nikolopoulos (ed.), Taxation in Crisis, chapter 12, pages 289-336, Palgrave Macmillan.
    3. Michael MITSOPOULOS & Theodore PELAGIDIS, 2021. "Labor Taxation And Investment In Developed Countries. The Impact On Employment," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 13-31, June.
    4. Hummel, Albert Jan & Jacobs, Bas, 2023. "Optimal income taxation in unionized labor markets," Journal of Public Economics, Elsevier, vol. 220(C).
    5. Alho, Kari O. E., 2006. "Labour Market Institutions and the Effectiveness of Tax and Benefit Policies in Enchancing Employment: A General Equilibrium Analysis," Discussion Papers 1008, The Research Institute of the Finnish Economy.

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