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Progressive Tax and Inequality in a Unionized Economy *
Author(s) -
Huang ChunChieh,
Chang JuinJen,
Hung HsiaoWen
Publication year - 2020
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12328
Subject(s) - economics , labour economics , progressive tax , inequality , endogenous growth theory , dividend , economic inequality , growth model , capital (architecture) , wage inequality , income tax , wage , human capital , macroeconomics , tax reform , gross income , state income tax , market economy , history , mathematical analysis , mathematics , archaeology , finance
In this paper, we develop a heterogeneous‐agent, endogenous growth model of a unionized economy with distinct progressive tax schedules on labor and capital income. With time preference heterogeneity, the effective labor force, balanced growth, and income inequality are endogenously determined, and these interact with each other. A reduction in the degree of progressive labor tax yields a “double‐dividend” in terms of reducing income inequality and boosting economic growth, while capital income progressivity displays the usual growth–inequality trade‐off. Particularly, the double‐dividend effect becomes more pronounced when unionization is declined or trade unions become more wage‐oriented, leading to the so‐called “Cheshire cat” phenomenon.