Is Tax Progression Good for Employment? Efficiency Wages and the Role of the Prereform Tax Structure
AbstractWithin an efficiency-wage framework, we study the effects of two revenue-neutral tax reforms that change the progressivity of the labor tax system. A revenue-neutral increase in both the wage tax and the tax exemption and a revenue-neutral change in the composition of labor taxation towards the tax with the smaller base will lead to the same results: they moderate wages, workers´ effort, effective labor input, and aggregate output. Whether employment rises or falls, however, depends in both reforms on the magnitude of the prereform total tax wedge. We show that this ambiguity stems from the effect tax progression has on the marginal revenue changes of tax and tax exemption changes. This budgetary effect determines the result in the same way in both tax reforms and turns out to be the crucial force in determining the effect the degree of tax progressivity has on employment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 65 (2009)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.