This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. AEA Papers and Proceedings
  4. May 2024
  5. Monopsony Amplifies Distortions from Progressive Taxes

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

Menu

Monopsony Amplifies Distortions from Progressive Taxes

  • David Berger
  • Kyle Herkenhoff
  • Simon Mongey
  • Negin Mousavi
AEA Papers and Proceedings
vol. 114, May 2024
(pp. 555–60)
Download Full Text PDF

Abstract

Progressive income taxes distort hiring and wages when firms have labor market power. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits.

Citation

Berger, David, Kyle Herkenhoff, Simon Mongey, and Negin Mousavi. 2024. "Monopsony Amplifies Distortions from Progressive Taxes." AEA Papers and Proceedings, 114: 555–60. DOI: 10.1257/pandp.20241002

Additional Materials

JEL Classification

  • G22 Insurance; Insurance Companies; Actuarial Studies
  • H22 Taxation and Subsidies: Incidence
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • J23 Labor Demand
  • J31 Wage Level and Structure; Wage Differentials
  • J41 Labor Contracts
  • J42 Monopsony; Segmented Labor Markets