Effort, Taxation and Unemployment
Univ. of Aarhus Dept. of Economics WP 1997-11
15 Pages Posted: 7 Oct 1997
Date Written: June 17, 1997
The importance of the design of the income tax system for the incentive to supply effort is considered for both a situation where firms (efficiency wage model) or unions (monopoly union model) have the power to determine wages. A tax reform raising marginal taxes at all income levels and increasing (decreasing) average taxes at high (low) income levels may lead to higher wages, lower employment and higher unemployment under either wage determination regime.
JEL Classification: J41, J51, H22
Suggested Citation: Suggested Citation