Efficiency Wages and the Long-Run Incidence of Progressive Taxation

U of Aarhus, Economics Working Paper No. 2001-5

23 Pages Posted: 17 Dec 2001

See all articles by Bo Sandemann Rasmussen

Bo Sandemann Rasmussen

Aarhus University - Department of Economics and Business Economics

Date Written: July 2001

Abstract

Progressive income taxation has for some time been recognized to provide incentives for wage restraint in models with imperfectly competitive labour markets. Recent research has established that bargaining over individual working hours may reverse the wage restraining effect such that increased tax progression may reduce employment. In the present paper an alternative explanation for such adverse employment effects is suggested. Using an efficiency wage model it is shown that long run adjustment in the number of firms to changes in profits may imply that an increase in tax progression has adverse employment effects when all the budgetary effects of the tax reform are taken into account.

JEL Classification: J41, H22

Suggested Citation

Rasmussen, Bo Sandemann, Efficiency Wages and the Long-Run Incidence of Progressive Taxation (July 2001). U of Aarhus, Economics Working Paper No. 2001-5, Available at SSRN: https://ssrn.com/abstract=283239 or http://dx.doi.org/10.2139/ssrn.283239

Bo Sandemann Rasmussen (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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