The Unemployment and Wage Effects of Shifting to an Indirect Tax in an Efficiency Wage Model

This paper examines the unemployment and wage effects of the tax shift from an income tax to a consumption tax in a shirking‐type efficiency wage model. It is found that the results of the ex‐ante individual income‐neutral and aggregate revenue‐neutral proposals in this paper's efficiency wage model confirm those in the monopoly trade union model analyzed by Sampson (1986), Creedy and McDonald (1990, 1992), and Pemberton (1992). The ex‐post tax‐shifting schemes are also discussed.