print logo
­

Progressive Taxes and the Labour Market: Is the Trade-off between Equality and Efficiency Inevitable?

Sammendrag

Does an income tax harm economic efficiency more the more progressive it is? Public economics provides a strong case for a definite 'yes'. But a least three forces may pull in the other direction. First, low-wage workers may on average have more elastic labour supply schedules than high-wage workers, in which case progressive taxes contribute to a more efficient allocation of the total tax burden. Second, in non-competitive labour markets, progressive taxes may encourage wage moderation, and hence reduce the equilibrium level of unemployment, And third, if wage setters have egalitarian objectives, progressive taxes may reduce the need for redistribution in pre-tax wages, and hence increase the demand for low-skilles workers. This paper surveys the theoretical, as well as the empirical literature about labour supply, taxes and wage setting. We conclude that in a second best world, the trade-off between equality and efficiency is not always inevitable.

Om publikasjonen

Forfattere:

Røed, Knut and Steinar Strøm

År:

2002

Tidsskrift:

Journal of Economic Surveys

Serie:

Vitenskapelige tidsskrift

Nøkkelord:

Tax progressivity, dead-weight loss, redistribution

Prosjekt:

1142 - Inntektsskatt, fordeling og effektivitet

Kontakt:

knut.roed@frisch.uio.no