Optimal Capital Taxation with Labor Unions

Palokangas, T. (2006). Optimal Capital Taxation with Labor Unions. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-06-028

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In this paper, I examine the nature of optimal capital taxation in an economy where labor unions set wages. Wage contracts are called binding, if they protect investors against immediate expropriation after new machines are installed. I show that in order to maintain aggregate production efficiency the government needs a labor tax only in the presence and taxes on both labor and capital in the absence of binding contracts. In addition, I construct optimal tax rules for the cases of both binding and non-binding wage contracts.

Item Type: Monograph (IIASA Interim Report)
Research Programs: Dynamic Systems (DYN)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:39
Last Modified: 27 Aug 2021 17:19
URI: https://pure.iiasa.ac.at/8069

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