abstract: 'This paper extends the Diamond (1980) model with labor unions to study

  optimal income taxation and to analyze whether unions can be desirable

  for income redistribution if income taxes are optimized. Unions bargain

  with firms over wages in each sector and firms unilaterally determine

  employment. Optimal unemployment benefits and optimal income taxes are

  lower in unionized labor markets. Unions raise the efficiency costs of

  income redistribution, because unemployment benefits and income taxes

  raise wage demands, and thereby generate involuntary unemployment. We

  show that unions are socially desirable only if they represent

  (low-income) workers whose participation is subsidized on a net basis.

  By creating implicit taxes on work, unions alleviate the labor-market

  distortions caused by income tax-ation. We empirically verify whether

  (i) participation tax rates are lower if unions are more powerful, and

  (ii) unions are desirable by compiling our own data set with union

  densities and participation tax rates for 18 sectors in 23 advanced

  countries. In line with our theoretical predictions, we find that

  participation tax rates are lower if unions are stronger. Moreover, the

  desirability condition for unions is never met empirically. Numerical

  simulations for the Netherlands confirm that unions are not desirable if

  income taxes are optimized and optimal participation taxes are lower if

  unions are stronger.(c) 2022 The Author(s). Published by Elsevier B.V.

  This is an open access article under the CC BY license

  (http://creativecommons.org/licenses/by/4.0/).'
affiliation: 'Jacobs, B (Corresponding Author), Vrije Univ Amsterdam, Sch Business
  \& Econ, De Boelelaan 1105, NL-1081 HV Amsterdam, Netherlands.

  Hummel, Albert Jan, Univ Amsterdam, Tinbergen Inst, Amsterdam, Netherlands.

  Hummel, Albert Jan; Jacobs, Bas, CESifo, Munich, Germany.

  Jacobs, Bas, Vrije Univ Amsterdam, Tinbergen Inst, Amsterdam, Netherlands.

  Jacobs, Bas, Vrije Univ Amsterdam, Sch Business \& Econ, De Boelelaan 1105, NL-1081
  HV Amsterdam, Netherlands.'
article-number: '104801'
author: Hummel, Albert Jan and Jacobs, Bas
author-email: 'a.j.hummel@uva.nl

  b.jacobs@vu.nl'
author_list:
- family: Hummel
  given: Albert Jan
- family: Jacobs
  given: Bas
da: '2023-09-28'
doi: 10.1016/j.jpubeco.2022.104801
earlyaccessdate: FEB 2023
files: []
issn: 0047-2727
journal: JOURNAL OF PUBLIC ECONOMICS
keywords: Optimal taxation; Unions; Wage bargaining; Labor participation
keywords-plus: 'WAGE INEQUALITY; TAX PROGRESSION; PUBLIC PRODUCTION; EFFICIENCY;

  EMPLOYMENT; UNEMPLOYMENT; INSTITUTIONS; RESPONSES; POLICY; MODEL'
language: English
month: APR
number-of-cited-references: '88'
papis_id: fa35313a3e1bae366886fb900c8ae62c
ref: Hummel2023optimalincome
times-cited: '0'
title: Optimal income taxation in unionized labor markets q
type: article
unique-id: WOS:000948164600001
usage-count-last-180-days: '3'
usage-count-since-2013: '3'
volume: '220'
web-of-science-categories: Economics
year: '2023'