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Commodity Taxes, Wage Determination, and Profits
Author(s) -
Delipalla Sophia,
Sanfey Peter
Publication year - 2001
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00062
Subject(s) - economics , commodity , wage , profitability index , ad valorem tax , labour economics , revenue , tax revenue , microeconomics , tax reform , market economy , macroeconomics , accounting , finance
We examine the effects of two different types of commodity taxation, specific and ad valorem, on wages and profits. We analyze two models of wage determination, one with efficiency wage setting and one with union‐firm bargaining. In the former, a (locally) revenue‐neutral shift from specific to ad valorem taxation leads to an increase in both employment and wages and a reduction in profitability. In the latter, the effect on wages and profits may be reversed: predominantly ad valorem taxation raises employment but lowers wages, and under certain circumstances, the net effect is an increase in profits.