Payroll Taxes and Vat in a Labor-Turnover Model of the 'Natural Rate'

INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, No. 3, 1996

Posted: 18 Apr 1998

See all articles by Hian Teck Hoon

Hian Teck Hoon

Singapore Management University

Edmund S. Phelps

Center on Capitalism and Society, Columbia University

Abstract

We explore the effects of the tax structure in our version of the labor-turnover model of unemployment. We show that for a closed economy, a shift to increased payroll taxation offset by a lighter VAT rate raises the natural rate of unemployment. However, for a small open economy whose interest rate is given by the world rate, the tax shift is neutral for employment. Extending the analysis to a two- country world exhibiting free international capital mobility, we show that a tax shift in either one of the countries raises the natural rate in both economies.

JEL Classification: E24, E62, H22

Suggested Citation

Hoon, Hian Teck and Phelps, Edmund S., Payroll Taxes and Vat in a Labor-Turnover Model of the 'Natural Rate'. INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, No. 3, 1996. Available at SSRN: https://ssrn.com/abstract=4093

Hian Teck Hoon (Contact Author)

Singapore Management University ( email )

School of Economics
90, Stamford Road
Singapore, 178903
Singapore
65 6828-0248 (Phone)
65 6828-0833 (Fax)

Edmund S. Phelps

Center on Capitalism and Society, Columbia University ( email )

420 W. 118th Street
New York, NY 10027
United States
212-854-2060 (Phone)
212-854-8059 (Fax)

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