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Tax Progression under Collective Wage Bargaining and Individual Effort Determination
Author(s) -
KOSKELA ERKKI,
SCHÖB RONNIE
Publication year - 2012
Publication title -
industrial relations: a journal of economy and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.61
H-Index - 57
eISSN - 1468-232X
pISSN - 0019-8676
DOI - 10.1111/j.1468-232x.2012.00699.x
Subject(s) - economics , wage bargaining , wage , labour economics , negotiation , moderation , tax revenue , welfare , macroeconomics , market economy , political science , psychology , social psychology , law
We study the impact of tax policy on wage negotiations, workers’ effort, employment, output, and welfare under imperfectly observable effort. A higher degree of tax progression always leads to wage moderation, but the well‐established result from the wage bargaining literature that a revenue‐neutral increase in the degree of tax progression is good for employment does not carry over to the case with wage negotiations and imperfectly observable effort. Introducing tax progression increases employment and output, but we cannot rule out that the negative effort effect of increasing tax progression will lead employment to fall when tax progression is already high.