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Tax Incidence in a Model with Efficiency Wages and Unemployment

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  • Vassilis Rapanos

Abstract

The purpose of the present paper is to examine the effects of taxation on income distribution in a model with efficiency wages and involuntary unemployment. Central to our efficiency-wage model is the hypothesis that firms set wages above market-clearing levels, whenever the productivity of labor depends on the real wage paid by the firm, and unemployment. Within a two sector general equilibrium model we study the incidence of factor and commodity taxes on income distribution, and unemployment. Our findings differ substantially from those derived by the traditional neoclassical analysis, originally developed by Harberger, and as it has been extended by several authors.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 20 (2006)
Issue (Month): 4 ()
Pages: 477-494

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Handle: RePEc:taf:intecj:v:20:y:2006:i:4:p:477-494

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Keywords: Tax incidence; efficiency wages;

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  1. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
  2. Joseph E. Stiglitz, 1984. "Theories of Wage Rigidity," NBER Working Papers 1442, National Bureau of Economic Research, Inc.
  3. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1988. "The Structure of Simple General Equilibrium Models with Frictional Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1267-93, December.
  4. Levine, David, 1987. "Efficiency wages in Weitzman's share economy," Economics Letters, Elsevier, vol. 23(3), pages 245-249.
  5. Imam, M Hasan & Whalley, John, 1985. "Incidence Analysis of a Sector-specific Minimum Wage in a Two-Sector Harris-Todaro Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(1), pages 207-24, February.
  6. Johnson, Harry G & Mieszkowski, Peter, 1970. "The Effects of Unionization on the Distribution of Income: A General Equilibrium Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(4), pages 539-61, November.
  7. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  8. Agell, Jonas & Lundborg, Per, 1992. "Fair wages, involuntary unemployment and tax policies in the simple general equilibrium model," Journal of Public Economics, Elsevier, vol. 47(3), pages 299-320, April.
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