Optimal tax progressivity in unionised labour markets
"In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal lev...
| Main Author: | |
|---|---|
| Institution: | ETUI-European Trade Union Institute |
| Format: | TEXT |
| Language: | English |
| Published: |
The Hague
2009
CPB |
| Subjects: | |
| Online Access: | https://www.labourline.org/KENTIKA-19185923124919031059-optimal-tax-progressivity-in-u.htm |
| Summary: | "In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal level of tax progressivity within this trade-off is determined using a numerical general equilibrium model with imperfect competition on the goods market, collective wage bargaining and a labour-supply module calibrated to empirically plausible elasticity values. The model is calibrated to macroeconomic and institutional parameters of both the OECD average and a number of individual OECD countries. In most cases the optimal degree of tax progressivity is below the actual level. A decomposition approach shows that the optimal level is increased by high unemployment and by the general tax level." |
|---|---|
| Physical Description: | 41 p. Digital |