March 2005

IZA DP No. 1545: Union Strategy and Optimal Income Taxation

published in: Journal of Public Economics, 2006, 90(1-2), 393-402

Restrictions on work hours are more important in countries with a large welfare state. We show that this empirical observation is consistent with the strategic effects of such restrictions in a welfare state in the context of optimal direct taxation in the tradition of Mirrlees (1971). Our results also apply to non-welfarist states which have income redistribution, but not in purely extortionary states.