Working Paper

Labor Tax Progressivity, Wage Determination, and the Relative Wage Effect

Giorgio Brunello, Daniela Sonedda
CESifo, Munich, 2002

CESifo Working Paper No. 721

We model a two sector economy with unionized labor markets and competitive product markets, where workers and unions care about their relative wages, and show that the presence of a relative wage concern could help generation a positive relationship between tax progressivity and wage pressure.

Keywords: progressive taxation, relative wage effect