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Efficient Job Creation in LDCs Requires a Tax on Employment


  • de Meza, David
  • Natale, Piergiovanna


This paper argues that, contrary to the views of most development economists, policies that raise the cost of labor relative to capital are in the collective and individual interest of LDCs. The reason is that low wages mean that the attractiveness of an LDC production location is positively correlated with labor intensity. A labor tax combined with a capital subsidy consequently hits hardest the processes willing to pay the most to produce in an LDC. Even if employment is a concern, the policy is still beneficial if elasticities of substitution are in the empirically relevant range. Copyright 1989 by Royal Economic Society.

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  • de Meza, David & Natale, Piergiovanna, 1989. "Efficient Job Creation in LDCs Requires a Tax on Employment," Economic Journal, Royal Economic Society, vol. 99(398), pages 1112-1122, December.
  • Handle: RePEc:ecj:econjl:v:99:y:1989:i:398:p:1112-22

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    References listed on IDEAS

    1. Fagerberg, Jan, 1987. "A technology gap approach to why growth rates differ," Research Policy, Elsevier, vol. 16(2-4), pages 87-99, August.
    2. Kellman, M, 1983. "Relative Prices and International Competitiveness: An Empirical Investigation," Empirical Economics, Springer, vol. 8(3-4), pages 125-138.
    3. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    4. Ã…dne Cappelen & Nils Petter Gleditsch & Olav Bjerkholt, 1984. "Military Spending and Economic Growth in the OECD Countries," Journal of Peace Research, Peace Research Institute Oslo, vol. 21(4), pages 361-373, December.
    5. Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Oxford University Press, vol. 1(1), pages 61-76, March.
    6. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
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