A Cross-Country Analysis of the Tax-Push Hypothesis
IMF Working Papers, February 1, 1992
Source details
- Canonical URL
- A Cross-Country Analysis of the Tax-Push Hypothesis
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Bibliographic details
- Authors: Fiorella Padoa-Schioppa
- Published: February 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451925944.001
Study objective and framework
- Presents a microeconomic theoretical model of union optimizing behavior.
- Uses the model to test the relevance of the tax-push hypothesis for wage formation in nine Western European countries.
- Identifies two model mechanisms that account for the effect (if any) of tax rates on wage formation:
- the compensation effect
- the progressivity effect
Empirical approach
- A wage equation is tested for the period 1960-1988.
- Sample: nine Western European countries (as described in the working paper).
Key findings
- In general, small open economies have negligible compensation and progressivity effects.
- In larger economies, direct, indirect and social security tax rates are transferred onto the real labor cost.
- All countries show a weakening of the tax shifting starting at the end of the 1970s or the beginning of the 1980s.
Subject and keywords (as listed)
- Subjects: Average effective tax rate, Income and capital gains taxes, Labor, Progressive taxation, Real wages, Tax policy, Taxes, Wage setting
- Keywords: Average effective tax rate, direct tax, direct tax tax rate, Europe, full employment, Income and capital gains taxes, indirect tax tax rate, net real wage, personal income, Progressive taxation, rate equation, rate estimation, rate flat, rate function, Real wages, reservation wage, steady state wage equation, wage rate, Wage setting, WP