Optimal tax progressivity in unionised labour markets: what are the driving forces?

No 09-065, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

Keywords: labour taxation; tax progressivity; optimal taxation; collective wage bargaining; unemployment (search for similar items in EconPapers)
JEL-codes: H21 J22 J51 J64 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-lab and nep-pub
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal tax progressivity in unionised labour markets: What are the driving forces? (2011)
Working Paper: Optimal tax progressivity in unionised labour markets; what are the driving forces? (2009)
Working Paper: Optimal Tax Progressivity in Unionised Labour Markets: What are the Driving Forces? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:09065

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