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Right arrow H24 - Personal Income and Other Nonbusiness Taxes and Subsidies
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© 1997 Oxford University Press

research-article

WAGE DETERMINATION UNDER NON-LINEAR TAXES: ESTIMATION AND AN APPLICATION TO PANEL DATA

THOMAS ARONSSON, MAGNUS WIKSTRÖM, and RUNAR BRÄNNLUND

Department of Economics, Umed University S-90187 Umed, Sweden

This paper studies wage determination under piecewise linear taxes in a unionised labour market. The purposes of the paper are to model how piecewise linear taxation affects the choice set of the union, and to take this information into account in the estimation. The empirical application is based on panel data. Piecewise linear taxes necessitates formal assumptions about the sources of randomness, and we find that both unobserved heterogeneity and measurement errors in the wage rate are important to consider in the estimation. We also find that taxes are likely to have a non-negligible impact on the (pre-tax) wage rate.


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