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On the Provision of Public Goods in an Economy with Union Wage Setting and Distortionary Taxation

Author

Listed:
  • Aronsson, Thomas

    (Department of Economics, Umeå University)

  • Löfgren, Karl-Gustaf

    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    (Department of Economics, Umeå University)

Abstract

This paper concerns public good provision under distortionary labor income taxation. The labor market is characterized by imperfect competition due to the influence of unions over wage formation. We show that a tradeoff between employment and hours of work per employee influences the welfare effect of an increase in the provision of the public good. This tradeoff means that the welfare gain of an increase in the hours of work, which is associated with the preexisting labor income tax, will be counteracted by a welfare cost in terms of lost employment. We also show how the welfare effect of an increase in the provision of the public good depends on whether the unions are able to directly affect the hours of work per employed union member, or if this influence only comes indirectly via the wage rate.

Suggested Citation

  • Aronsson, Thomas & Löfgren, Karl-Gustaf & Sjögren, Tomas, 2002. "On the Provision of Public Goods in an Economy with Union Wage Setting and Distortionary Taxation," Umeå Economic Studies 581, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0581
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    Cited by:

    1. Aronsson, Thomas & Löfgren, Karl-Gustaf & Sjögren, Tomas, 2002. "A Note on Environmental Policy Reform, Distortionary Taxation and Imperfect Competition," Umeå Economic Studies 600, Umeå University, Department of Economics.

    More about this item

    Keywords

    Public goods; distortionary taxation; union wage setting.;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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