We study the empirical relationship between labor taxation and pretax wages in Italy. We find that higher tax … progressivity increases pretax wages. To explain this result, we introduce in an informal way a relative wage effect and argue that … employment. The evidence on the effect of the average income tax rate on pretax wages is more mixed, but it also points to the …

progressivity. Economic theory suggests that higher progressivity could reduce unemployment. Suppose that wages are bargained over … abatement of pollution. A decline in average labor taxes reduces unemployment if it generates lower pretax wages. Pretax wages …Public finance solutions to high unemployment in Europe have often been advocated during the past years. With …

care about their relative wages, and show that the presence of a relative wage concern could help generation a positive …