A two-sector general equilibrium model with imperfectly competitive labour markets is set up. Non-cooperative equilibria with wage setting at the sectoral level are shown to depend on the choice of price normalization rule even though all agents behave fully rationally. Hence, imposing...

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...