A positive analysis of labor-market institutions and tax reforms |
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Authors: | Thorsten Upmann |
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Institution: | (1) Institute of Mathematical Economics, University of Bielefeld, P.O. Box 100 131, 33501 Bielefeld, Germany |
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Abstract: | In this paper, we investigate the structure of the “Laffer curve” for taxes on labor and other factors of production, under
different institutional frameworks of the labor market. Using a Cobb–Douglas production technology allows us to characterize
important properties of the “Laffer curve” in terms of the wage share for a competitive labor market, the monopoly union model,
the right-to-manage approach, the insider-dominated union, and efficient Nash bargains simultaneously. In this way, we are
able to highlight the menu of factor tax systems, and thus of potential tax reforms available to a government, without perfect
knowledge of the mechanism of the labor market. In particular, we show that the employment-maximizing tax system features
a constant energy tax, while the energy mini-/maximizing tax system features a constant labor tax. We also illuminate to what
extent these results must be modified if we either employ a CES production function, or if we allow for an endogenous reservation
wage. |
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Keywords: | |
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