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Real appreciation as an automatic channel for redistribution of increased government non-tax revenue

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    The paper analyses how equilibrium adjustments of the wage rate affect the scope for tax rate reductions when the government experiences an exogenous increase in non-tax revenues. It shows within a stylized model that increased revenue in the form of a tradable will increase the wage rate, which diminishes the scope for tax rate reduction, provided that the initial wage dependent government net expenditures are positive. In this case the wage rate adjustment represents an automatic channel for redistributing increased non-tax government revenues. When the revenue increases in the form a non-tradable, the wage rate adjustment reinforces the scope for tax rate reduction. Simulations on a CGE model of the Norwegian economy confirm the theoretical results, and demonstrate that the fiscal wage effect can be strikingly large.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp471.pdf
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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 471.

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    Date of creation: Sep 2006
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    Handle: RePEc:ssb:dispap:471
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    1. Steigum, E. & Thogersen, O., 1998. "Borrow and Adjust. Fiscal Policy and Sectoral Adjustment in an Open Economy," Papers 28/98, Norwegian School of Economics and Business Administration-.
    2. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
    3. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
    4. repec:ner:tilbur:urn:nbn:nl:ui:12-383717 is not listed on IDEAS
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