Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28612 
Authors: 
Year of Publication: 
2009
Series/Report no.: 
ZEW Discussion Papers No. 09-065
Publisher: 
Zentrum für Europäische Wirtschaftsforschung (ZEW), Mannheim
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.
Subjects: 
labour taxation
tax progressivity
optimal taxation
collective wage bargaining
unemployment
JEL: 
H21
J22
J51
J64
Document Type: 
Working Paper

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