A Cross-Country Analysis of the Tax-Push Hypothesis
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.
Series:
Working Paper No. 1992/011
Subject:
Average effective tax rate Income and capital gains taxes Labor Progressive taxation Real wages Tax policy Taxes Wage setting
English
Publication Date:
February 1, 1992
ISBN/ISSN:
9781451925944/1018-5941
Stock No:
WPIEA0111992
Pages:
58
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