Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192453 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
Discussion Papers No. 471
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
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.
Subjects: 
Tax incidence
fiscal policy
general equilibrium effects
JEL: 
D58
H22
H61
Document Type: 
Working Paper

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