Union strategy and optimal direct taxation

Restrictions on working 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) [Mirrlees, J.A., 1971. An exploration in the theory of optimum income taxation. Review of Economic Studies 38, 175-208]. Our results also apply to non-welfarist states that have income redistribution, but not in purely extortionary states.