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Charity and redistributive taxation in a unionized economy

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  • Corneo, Giacomo

Abstract

European economies are characterized by unionized labor markets and a pronounced governmental redistribution of income. This paper studies a model where those two features are combined with the possibility for individuals to make charitable contributions to the poor. The model exhibits equilibrium unemployment that increases with the degree of altruism. It is shown that a more progressive income tax can both reduce the unemployment rate and improve the public budget. These results are driven by charity increasing wage pressure and the altruistic rich failing to internalize the effect of their donations on the wage setting behavior of the unions.

Suggested Citation

  • Corneo, Giacomo, 2006. "Charity and redistributive taxation in a unionized economy," Discussion Papers 2006/21, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:200621
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    References listed on IDEAS

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    1. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
    2. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2007. "From Bottom to Top: The Entire Distribution of Market Income in Germany, 1992-2001," SOEPpapers on Multidisciplinary Panel Data Research 51, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2005. "Top Incomes and Top Taxes in Germany," Discussion Papers of DIW Berlin 532, DIW Berlin, German Institute for Economic Research.
    4. Robert A. J. Dur, 2001. "The Credibility Problem in Unemployment Insurance Policy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 634-650, December.
    5. 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.
    6. 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.
    7. repec:bla:scandj:v:85:y:1983:i:3:p:311-23 is not listed on IDEAS
    8. 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.
    9. Jonas Beste & Markus M. Grabka & Jan Goebel, 2018. "Armut in Deutschland [Poverty in Germany]," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 12(1), pages 27-62, April.
    10. Ferris, J Stephen & West, Edwin G, 2003. "Private versus Public Charity: Reassessing Crowding Out from the Supply Side," Public Choice, Springer, vol. 116(3-4), pages 399-417, September.
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    Cited by:

    1. Koulovatianos, Christos & Schrder, Carsten & Schmidt, Ulrich, 2009. "Nonmarket Household Time and the Cost of Children," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 42-51.

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    More about this item

    Keywords

    Equilibrium Unemployment; Income Tax; Charity; Trade Unions;
    All these keywords.

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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