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Three Theorems on Inflation Taxes and Marginal Employment Subsidies

Author

Listed:
  • Andrew J. Oswald

    (Princeton University and Oxford University)

Abstract

The paper studies the microeconomic theory of inflation taxes and marginal employment subsidies. It proves that under very weak assump- tions (i) an inflation tax will reduce the 1ong-run equilibrium wage or price and (ii) that a marginal employment subsidy will raise the long- run equilibrium employment level. The theorems, which show the policies' formal similarities, are illustrated with examples. One caveat is also raised: in a competitive industry (rather than a single firm), with free entry and exit, a marginal employment subsidy might reduce the total number of jobs. The paper also proves (iii) that in special circumstances a tax on inflation is exactly equivalent to a marginal employment subsidy.

Suggested Citation

  • Andrew J. Oswald, 1983. "Three Theorems on Inflation Taxes and Marginal Employment Subsidies," Working Papers 547, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:167
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    Cited by:

    1. Mary C. Daly & Daniel J. Wilson, 2006. "Keeping Up with the Joneses and Staying Ahead of the Smiths: Evidence from Suicide Data," Working Paper Series 2006-12, Federal Reserve Bank of San Francisco.
    2. Kenneth Koford, 1987. "Some Short-Run Microeconomic Effects of a Market Incentive Anti-Inflation Plan," Public Finance Review, , vol. 15(2), pages 199-218, April.
    3. Andreas Knabe & Ronnie Schöb, 2013. "Subsidizing extra jobs: promoting employment by taming the unions," Oxford Economic Papers, Oxford University Press, vol. 65(4), pages 807-831, October.
    4. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," Kyklos, Wiley Blackwell, vol. 59(4), pages 557-577, November.
    5. Bijie Ren, 2008. "The regional effects of marginal wage subsidies," Psychometrika, Springer;The Psychometric Society, vol. 3(4), pages 598-626, December.
    6. Alain de Crombrugghe & Gregory de Walque, 2011. "Wage and employment effects of a wage norm : The Polish transition experience," Working Paper Research 209, National Bank of Belgium.
    7. Schöb, Ronnie, 2007. "Soziale Grundsicherung und Beschäftigung," Discussion Papers 2007/12, Free University Berlin, School of Business & Economics.

    More about this item

    JEL classification:

    • N00 - Economic History - - General - - - General

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