IMF Working Papers

A Cross-Country Analysis of the Tax-Push Hypothesis

By Fiorella Padoa-Schioppa

February 1, 1992

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Fiorella Padoa-Schioppa. A Cross-Country Analysis of the Tax-Push Hypothesis, (USA: International Monetary Fund, 1992) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a microeconomic theoretical model of union optimizing behavior which is then used to test the relevance of the tax-push hypothesis for wage formation in nine Western European countries. Two factors—the compensation and the progressivity effects—are shown by the model to account for the effect (if any) of tax rates on wage formation. A wage equation tested for the period 1960-1988 shows that in general small open economies have negligible compensation and progressivity effects, while in larger economies direct, indirect and social security tax rates are transferred onto the real labor cost. All countries show a weakening of the tax shifting starting at the end of the 1970s or the beginning of the 1980s.

Subject: Average effective tax rate, Income and capital gains taxes, Labor, Progressive taxation, Real wages, Tax policy, Taxes, Wage setting

Keywords: Average effective tax rate, Direct tax, Direct tax tax rate, Europe, Full employment, Income and capital gains taxes, Indirect tax tax rate, Net real wage, Personal income, Progressive taxation, Rate equation, Rate estimation, Rate flat, Rate function, Real wages, Reservation wage, Steady state wage equation, Wage rate, Wage setting, WP

Publication Details

  • Pages:

    58

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1992/011

  • Stock No:

    WPIEA0111992

  • ISBN:

    9781451925944

  • ISSN:

    1018-5941

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