WAGE DETERMINATION UNDER NONLINEAR TAXES - ESTIMATION AND AN APPLICATION TO PANEL-DATA

This paper studies wage determination under piecewise linear taxes in a unionised labour market. The purposes of the paper are to model how piecewise linear taxation affects the choice set of the union, and to take this information into account in the estimation. The empirical ap plication is based on panel data. piecewise linear taxes necessitates formal assumptions about the sources of randomness, and we find that b oth unobserved heterogeneity and measurement errors in the wage rate a re important to consider in the estimation. We also find that taxes ar e likely to have a non-negligible impact on the (pre-tax) wage rate.