Progressive income taxation has for some time been recognized to provide incentives for wage restraint in models with imperfectly competitive labour markets. Recent research has established that bargaining over individual working hours may reverse the wage restraining effect such that increased...

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...