Wage setting and the tax system: theory and evidence for the UK

Lockwood, Ben and Manning, Alan ORCID: 0000-0002-7884-3580 (1993) Wage setting and the tax system: theory and evidence for the UK. CEP Discussion Papers (115). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

This paper analyses the effect of a non-linear tax system on wage bargaining. The main conclusions are: an increase in the marginal income or payroll tax reduces the pre-tax wage; in the iso-elastic case, an increase in the average tax rate increases the pre-tax wage by more than the tax increase, and a measure of the progressivity of the tax system (residual income progression) is a sufficient measure of the effect of the tax system on wage pressure. Empirical evidence is presented to support these propositions, and the predictions of the model regarding the effect of recent changes to the U.K tax system on the distribution of earnings discussed.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 1993 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Date Deposited:	20 Aug 2008 10:44
Last Modified:	01 Oct 2024 03:15
URI:	http://eprints.lse.ac.uk/id/eprint/21004

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