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Efficiency Wages and the Long-Run Incidence of Progressive Taxation

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  • Bo Sandemann Rasmussen

    (Department of Economics, University of Aarhus, Denmark)

Abstract

Progressive income taxation has for some time been recognized to provide incentives for wage restraint in models with imperfectly competitive labour markets. Recent research has established that bargaining over individual working hours may reverse the wage restraining effect such that increased tax progression may reduce employment. In the present paper an alternative explanation for such adverse employment effects is suggested. Using an efficiency wage model it is shown that long-run adjustment in the number of firms to changes in profits may imply that an increase in tax progression has adverse employment effects when all the budgetary effects of the tax reform are taken into account.

Suggested Citation

  • Bo Sandemann Rasmussen, "undated". "Efficiency Wages and the Long-Run Incidence of Progressive Taxation," Economics Working Papers 2001-5, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2001-5
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    References listed on IDEAS

    as
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    Cited by:

    1. Michal Tvrdoň, 2008. "Institucionální aspekty fungování trhu práce [Institutional aspects of labour market]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(5), pages 621-642.

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    More about this item

    Keywords

    Efficiency wages; employment; progressive taxation; balanced budget tax reforms; long-run equilibrium;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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