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Non-Equivalence of Employment and Payroll Taxes in Imperfectly Competitive Labor Markets.

Univ. of Aarhus Dept. of Economics WP 1997-22

17 Pages Posted: 16 Dec 1997  

Bo Sandemann Rasmussen

University of Aarhus - Department of Economics

Date Written: 1997

Abstract

Equilibrium allocations in competitive labor market models are independent of whether labor taxes on firms are levied as employment taxes or payroll taxes, for given tax revenue. Turning to non-competitive labor market models, like wage bargaining of efficiency wage models, the two taxes cease to be equivalent in the sense that balanced-budget substitutions of one tax for the other affect equilibrium allocations. However, while more extensive use of payroll taxes always increases equilibrium employment in the wage bargaining model, it may lead to a lower level of equilibrium employment in the efficiency wage model.

JEL Classification: H22, J51

Suggested Citation

Rasmussen, Bo Sandemann, Non-Equivalence of Employment and Payroll Taxes in Imperfectly Competitive Labor Markets. (1997). Univ. of Aarhus Dept. of Economics WP 1997-22. Available at SSRN: https://ssrn.com/abstract=46301 or http://dx.doi.org/10.2139/ssrn.46301

Bo Sandemann Rasmussen (Contact Author)

University of Aarhus - Department of Economics ( email )

University Park
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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