Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20988 
Authors: 
Year of Publication: 
2000
Series/Report no.: 
IZA Discussion Papers No. 148
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
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.
Subjects: 
Efficiency wages
long-run
short-run
labour taxes
JEL: 
J32
H22
J41
H25
Document Type: 
Working Paper

Files in This Item:
File
Size
312.59 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.