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Does the wage tax system cause budget deficits? A macro-economic experiment

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  • Riedl, Arno

    (Maastricht University)

  • Winden, Frans van

Abstract

In this paper we investigate experimentally the economic functioning of a wage tax system for financing unemployment benefits in an international economy, in particular in reaction to budget deficits and tax adjustment. Our results support the hypothesis that due to out-of-equilibrium price uncertainty producers are reluctant to employ inputs. We also observe a downward pressure on wages exacerbated by an over-supply of labor by consumers. These observations can explain the budget deficits found. Furthermore, we find that tax adjustments in order to facilitate a balancing of the budget has strong adverse effects on unemployment and real GDP. Copyright 2001 by Kluwer Academic Publishers

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Maastricht University in its series Open Access publications from Maastricht University with number urn:nbn:nl:ui:27-16455.

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Date of creation: 2001
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Publication status: Published in Public choice (2001) v.109, p.371-394
Handle: RePEc:ner:maastr:urn:nbn:nl:ui:27-16455

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Web page: http://www.maastrichtuniversity.nl/web/Home.htm

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References

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  1. Kenen,Peter B., 2000. "The International Economy," Cambridge Books, Cambridge University Press, number 9780521644358.
  2. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
  3. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June.
  4. Plott, Charles R. & Gray, Peter, 1990. "The multiple unit double auction," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 245-258, March.
  5. Noussair, C.N. & Plott, C. & Riezman, R., 1995. "An experimental investigation of the patterns of international trade," Open Access publications from Tilburg University urn:nbn:nl:ui:12-387775, Tilburg University.
  6. Hartman, Richard, 1976. "Factor Demand with Output Price Uncertainty," American Economic Review, American Economic Association, vol. 66(4), pages 675-81, September.
  7. Zhang, Guochang, 1998. "Ownership concentration, risk aversion and the effect of financial structure on investment decisions," European Economic Review, Elsevier, vol. 42(9), pages 1751-1778, November.
  8. Riedl, Arno & van Winden, Frans, 2007. "An experimental investigation of wage taxation and unemployment in closed and open economies," European Economic Review, Elsevier, vol. 51(4), pages 871-900, May.
  9. Yellen, Janet L, 1989. "Symposium on the Budget Deficit," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 17-21, Spring.
  10. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR & CES & MSH, vol. 12(25), pages 221-264, October.
  11. Holthausen, Duncan M, 1976. "Input Choices and Uncertain Demand," American Economic Review, American Economic Association, vol. 66(1), pages 94-103, March.
  12. Bernheim, B Douglas, 1989. "A Neoclassical Perspective on Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 55-72, Spring.
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Cited by:
  1. Casoria Fortuna & Riedl Arno, 2012. "Experimental labor markets and policy considerations: Incomplete contracts and macroeconomic aspects," Research Memoranda 058, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
  2. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers 334, University of Pittsburgh, Department of Economics, revised Mar 2008.

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