THE EFFECTS ON WAGES OF RECENT DANISH TAX REFORMS AIMED AT REDUCING THE PROGRESSIVITY OF LABOR INCOME TAXATION

Tax reforms currently taking place in Denmark are partly aimed at redu cing the progressivity of labour income taxation. The present analysis evaluates the effects of this element of the reforms. We assume imper fect competition in the market for blue collar workers and perfect com petition in the market for white collar workers. A reduction in progre ssivity has indeterminate effects on wages for blue collar workers if the bargaining is over both wage and hours of work. The empirical esti mate is positive. For white collar workers a reduction in the progress ivity has a negative effect on wages. This is confirmed by the empiric al estimates.