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A Tax‐Wage Bargain in Australia:Is a Free Lunch Possible? *
Author(s) -
CORDEN W. M.,
DIXON P. B.
Publication year - 1980
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1980.tb01671.x
Subject(s) - economics , labour economics , wage , investment (military) , product (mathematics) , balance (ability) , efficiency wage , real wages , tax credit , ad valorem tax , tax reform , market economy , public economics , medicine , geometry , mathematics , politics , political science , law , physical medicine and rehabilitation
This paper examines the feasibility of a tax‐wage bargain in Australia designed to increase employment without generating excess product demand while government expenditure. investment and the balance of trade are held constant. It is assumed that tax cuts would lower pre‐tax real wages while keeping post‐tax real wages constant, and that the lower wage costs would increase potential output and employment along neoclassical lines. The question is whether product demand would expand more or less than potential supply. Estimates from the ORANI model of the IMPACT project are used to obtain a relationship between real wage costs and potential output.