Progressive income taxes moderate wage demands by trade unions and thereby reduce unemployment, but also they reduce incentives to acquire skills and lower productivity of workers. The optimal response of the government to this dilemma is to choose a system of progressive taxes and to (partly)...

Progressive income taxes moderate wage demands by trade unions and thereby reduce unemployment, but alsothey reduce incentives to acquire skills and lower productivity of workers. The optimal response of the governmentto this dilemma is to choose a system of progressive taxes and to (partly)...