Optimal Factor Taxation Under Wage Bargaining - a Dynamic Perspective

38 Pages Posted: 22 Jan 2003

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Leopold von Thadden

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2003

Abstract

We consider the issue of steady-state optimal factor taxation in a Ramsey-type dynamic general equilibrium setting with two distinct distortions: i) taxes on capital and labour are the only available tax instruments for raising revenues, and ii) labour markets are subject to a static inefficiency resulting from wage bargaining. If considered in isolation, under broad assumptions the two distortions create conflicting demands on the wage tax, while calling for a zero capital tax. By combining the two distortions, we arrive at the conclusion that both instruments should be used, implying that the zero-capital tax result in general is no longer valid under imperfectly competitive labour markets.

Keywords: Optimal Taxation, Imperfectly Competitive Labour Markets, Capital Accumulation

JEL Classification: E62, H21, J51

Suggested Citation

Koskela, Erkki and von Thadden, Leopold, Optimal Factor Taxation Under Wage Bargaining - a Dynamic Perspective (January 2003). CESifo Working Paper Series No. 836. Available at SSRN: https://ssrn.com/abstract=371584

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Leopold Von Thadden

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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