Tax Credits For Employment Rather Than Investment: A Comment
AbstractIn an article in the American Economic Review, Jonathan R. Kesselman, Samuel H. Williamson and Ernst R. Berndt presented a Table showing the effect of substituting a marginal employment tax credit (METC)for the investment tax credit (ITC) over the 1962 to 1971 period. Their METC was defined in terms of a rate times the increase in the wage bi11 over a base defined to be the previous year's value. Any base, including the previous year's wage bill base, is of course merely a proxy for what employment might be in the absence of a credit. However, needless to say, some bases are better than others. In this comment, it is argued that the previous year's level is an inappropriate way to define a base for a permanent METC that is directed at encouraging the long-run substitution of labour for capital. A better definition for a wage bill base would be something that does not ratchet up over time decreasing the value of the credit. The paper also includes a few observations on the relevance of this analysis for the 1977 U.S. Job Credit which has a base as defined by Kessleman, Williamson and Berndt, but which is an explicitly temporary measure that will only be in effect in 1977 and 1978.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26401.
Date of creation: 21 Sep 1977
Date of revision:
tax credits; employment; fiscal policy; the 1977 Job Credit;
Find related papers by JEL classification:
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
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