Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46551
Authors: 
Koskela, Erkki
Year of Publication: 
2010
Series/Report no.: 
CESifo working paper: Public Choice 3239
Abstract: 
What are the impacts of labor tax reform on wage setting and employment to keep the relative tax burden per low-skilled and high-skilled workers constant in the case of heterogeneous domestic labor markets, i.e. imperfect competition in low-skilled labor and perfect competition in high-skilled labor in the presence of outsourcing? A higher degree of tax progression by raising the wage tax and the tax exemption for the low-skilled workers will decrease the wage rate and increase labor demand of low-skilled workers, whereas it will decrease (increase) employment of high-skilled workers in CES utility function when the elasticity of substitution between consumption and leisure is higher (lower) than one. A higher degree of wage tax progression for the high-skilled worker will have no effect on the high-skilled wage in the presence of CES utility function.
Subjects: 
heterogeneous domestic labor markets
wage bargaining
impacts of labor taxation
outsourcing
JEL: 
E24
H22
J21
J31
J51
Document Type: 
Working Paper

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