This paper presents a growth model with two sectors. In the high-tech sector, R&D increases productivity and union-firm bargaining determines wages, but in the traditional sector there are neither R&D nor labour unions. The government is able to regulate union bargaining power. The main results...

This document examines optimal capital taxation with wage-setting labour unions when the government taxes consumption, labour, and capital. The results are as follows. If unions can commit themselves to particular wages for a long period, then there is no hold-up problem. Otherwise, the hold-up...