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Tax Progressivity and Tax Evasion

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Author Info
Laszlo Goerke ()

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Abstract

More progressive income taxes raise employment in models of imperfectly competitive labour markets. However, this prediction is not robust to modifications of the analytical structure. For example, in an efficiency wage setting, more progressive taxes reduce profits. This induces firms to exit the market such that the positive employment effect can vanish in a framework with a constant profit constraint. In this paper, it is demonstrated for an according model that tax evasion opportunities raise the likelihood of positive employment effects due to higher tax progressivity.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1097.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1097

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Related research
Keywords: efficiency wages; employment; income tax; tax evasion; tax progressivity;

Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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  1. Rasmussen, Bo Sandemann, 1998. "Long run effects of employment and payroll taxes in an efficiency wage model," Economics Letters, Elsevier, vol. 58(2), pages 245-253, February. [Downloadable!] (restricted)
  2. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence," Papers 15, Uppsala - Working Paper Series.
    Other versions:
  3. Goerke, Laszlo, 1999. "Efficiency Wages and Taxes," Australian Economic Papers, Blackwell Publishing, vol. 38(2), pages 131-42, June. [Downloadable!] (restricted)
  4. Goerke, Laszlo, 1997. "An Open Shop, Wage Bargaining, and Taxation--A Note," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 651-57, October. [Downloadable!] (restricted)
  5. Albrecht, James W. & Vroman, Susan B., 1996. "A note on the long-run properties of the shirking model," Labour Economics, Elsevier, vol. 3(2), pages 189-195, September. [Downloadable!] (restricted)
  6. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September. [Downloadable!] (restricted)
  7. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82. [Downloadable!] (restricted)
  8. Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February. [Downloadable!] (restricted)
  9. Clemens Fuest & Bernd Huber, 1998. "Efficiency wages, employment, and the marginal income-tax rate: A note," Journal of Economics, Springer, vol. 68(1), pages 79-84, February. [Downloadable!] (restricted)
  10. Fuest, Clemens & Huber, Bernd, 2000. "Is tax progression really good for employment? A model with endogenous hours of work," Labour Economics, Elsevier, vol. 7(1), pages 79-93, January. [Downloadable!] (restricted)
  11. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February. [Downloadable!] (restricted)
  12. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
  13. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR, CES, MSH, vol. 12(25), pages 221-264, October. [Downloadable!] (restricted)
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