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Taxation, Unemployment and Working Time in Models of Economic Growth


  • Felix R. FitzRoy
  • Michael Funke


  • Michael A. Nolan


This paper combines collective bargaining over wages and working time with models of endogenous and neoclassical growth. Public expenditure is funded by taxes on capital and labour supplied by infinitely-lived households in a closed economy. Taxes on labour are generally inefficient in both growth models, there is a “dynamic Laffer Curve”, and employment is increased by a reduction of working hours below the collective bargaining level – except in the case of a monopoly union. Although growth is maximised by competitive (efficient) hours, welfare-optimal working time is below the collective bargain when union are ‘too weak’, and vice-versa.

Suggested Citation

  • Felix R. FitzRoy & Michael Funke & Michael A. Nolan, 2001. "Taxation, Unemployment and Working Time in Models of Economic Growth," Discussion Paper Series, Department of Economics 200112, Department of Economics, University of St. Andrews.
  • Handle: RePEc:san:wpecon:0112

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    References listed on IDEAS

    1. Terry J. Fitzgerald, 1998. "Reducing working hours: a general equilibrium analysis," Working Paper 9801, Federal Reserve Bank of Cleveland.
    2. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, April.
    3. Agell, Jonas & Persson, Mats, 2001. "On the analytics of the dynamic Laffer curve," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 397-414, October.
    4. G Houpis, 1993. "The Effect of Lower Hours of Work on Wages and Employment," CEP Discussion Papers dp0131, Centre for Economic Performance, LSE.
    5. Marimon, Ramon & Zilibotti, Fabrizio, 2000. "Employment and distributional effects of restricting working time," European Economic Review, Elsevier, vol. 44(7), pages 1291-1326, June.
    6. Agell, Jonas & Persson, Mats, 2000. "On Analytics of the Dynamic Laffer Curve," Seminar Papers 682, Stockholm University, Institute for International Economic Studies.
    7. Felix R. FitzRoy & Michael Funke & Michael A. Nolan, 1999. "Working Time, Taxation and Unemployment," Discussion Paper Series, Department of Economics 199901, Department of Economics, University of St. Andrews.
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    More about this item


    Taxation; unemployment; working time; growth.;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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