Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55670
Authors: 
Rocha-Akis, Silvia
Year of Publication: 
2012
Series/Report no.: 
CESifo working paper: Labour Markets 3739
Abstract: 
Over the previous two decades, many OECD countries have lowered the degree of progressivity in their tax structures. In this paper, I investigate labour tax progression in a world characterised by a segmented labour market where the higher-paying jobs are rationed due to (i) oligopolistic market structures, (ii) insider-oriented unions and (iii) international offshoring. In this second-best world, a revenue-neutral decrease in the progressivity of the tax schedule promotes higher domestic (net-of-tax) wage inequality where a shrinking fraction of workers provides the tax revenue to finance the redistribution to an increasing share of lower-wage workers. However, as the tax reform involves an increase in the offshoring intensity, which may translate into a cost advantage for the domestic average consumer, the overall welfare effect is ambiguous. It is shown that the negative effects dominate if trade unions are sufficiently insider-oriented.
Subjects: 
relocation
unionised oligopoly
labour market segmentation
labour income tax progression
trade union preferences
JEL: 
L13
H20
F16
J50
Document Type: 
Working Paper

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