The importance of the design of the income tax system for the incentive to supply effort is considered for both a situation where firms (efficiency wage model) or unions (monopoly union model) have the power to determine wages. A tax reform raising marginal taxes at all income levels and...

The future purchasing power of wage income may become risky in the presence of capital market imperfections. Current nominal wages, therefore, have intertemporal implications which in turn affect wage determination. The influence of consumption risk on wage setting is analyzed in a general...