equilibrium unemployment, income tax, charity, trade unions
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European economies are characterized by unionized labor markets and a pronounced
governmental redistribution of income. This paper studies a model where those two fea-
tures are combined with the possibility for individuals to make charitable contributions
to the poor. The model exhibits equilibrium unemployment that increases with the de-
gree of altruism. It is shown that a more progressive income tax can both reduce the
unemployment rate and improve the public budget. These results are driven by charity
increasing wage pressure and the altruistic rich failing to internalize the e¤ect of their
donations on the wage setting behavior of the unions.
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