In the Interest of Labor: How Trade Unions Shape Tax Policy in Economically Advanced Democracies

This paper is an exploration of the diverse roles trade unions play in shaping tax policy in economically advanced democracies. We ask when do trade unions favor progressive taxation? We argue that there is no simple relationship between trade union ‘power’ and the progressivity of the tax system. Instead, union fragmentation, the centralization of wage bargaining institutions and even employment protection are important institutional factors that shape unions’ preferences (and power). Higher fragmentation and stricter employment protection encourage trade unions to be oriented more towards the preferences of labour market insiders prioritizing more regressive forms of taxation. In contrast, when union organization is highly centralized or decentralized, they prefer more progressive forms of taxation. We show this with a batch of stylized regressions as well as anecdotal evidence from some European countries.