Tax Progressivity and Tax Evasion
AbstractMore 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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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1097.
Date of creation: 2003
Date of revision:
efficiency wages; employment; income tax; tax evasion; tax progressivity;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-05-02 (Accounting & Auditing)
- NEP-ALL-2004-05-02 (All new papers)
- NEP-PBE-2004-05-02 (Public Economics)
- NEP-PUB-2004-05-02 (Public Finance)
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