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Labour Taxation, Efficiency Wages and the Long Run
Author(s) -
Goerke Laszlo
Publication year - 2000
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00112
Subject(s) - economics , unemployment , labour economics , payroll , efficiency wage , revenue , payroll tax , tax revenue , wage , constant (computer programming) , tax deferral , monetary economics , tax reform , macroeconomics , state income tax , gross income , market economy , accounting , computer science , programming language
In an efficiency wage economy with variable profits, a shift from payroll to employment taxes will reduce unemployment if the tax level is held constant at the initial wage. However, unemployment will rise if firms are constrained to zero profits in the long run and if tax revenues are constant. This reversal of employment effects occurs because the shift in taxes reduces wages. This implies a budget deficit. Hence, taxes will have to be raised if revenues are held constant. If the firm’s profits cannot change, the tax increase will cause some firms to close down and unemployment will rise. Thus, the predicted employment consequences of changes in the tax structure depend on assumptions about the time horizon and budget constraint.