Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35571
Authors: 
Koskela, Erkki
Poutvaara, Panu
Year of Publication: 
2009
Series/Report no.: 
IZA discussion papers 3984
Abstract: 
We study the effects of revenue-neutral labor tax reforms in an imperfectly competitive domestic labor market under Nash wage bargaining and flexible outsourcing. A revenue-neutral increase in the wage tax progression will decrease the negotiated wage rate, increase domestic labor demand and decrease international outsourcing. In the presence of wage tax exemption, a lower payroll tax and a higher wage tax will increase domestic labor demand and decrease international outsourcing. The effect on the negotiated wage rate is positive with sufficiently strong labor market imperfections, and ambiguous with sufficiently weak labor market imperfections.
Subjects: 
Flexible outsourcing
wage bargaining
employment
tax-revenue neutral labor tax reforms
JEL: 
H11
H22
J41
J51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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