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Efficiency wages, employment, and the marginal income-tax rate: A note

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  • Clemens Fuest
  • Bernd Huber

Abstract

In the framework of an efficiency-wage model, Hoel [Journal of Economics (1990) 51: 89-99] argues that a reduction in the marginal income-tax rate reduces employment. The present note shows that this result depends on how the tax reform is assumed to change the burden per worker. If the tax payment per worker is held constant, it cannot be ruled out that a lower marginal tax rate leads to an increase in employment.
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Suggested Citation

  • Clemens Fuest & Bernd Huber, 1998. "Efficiency wages, employment, and the marginal income-tax rate: A note," Journal of Economics, Springer, vol. 68(1), pages 79-84, February.
    • Handle: RePEc:kap:jeczfn:v:68:y:1998:i:1:p:79-84
    DOI: 10.1007/BF01237465
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    References listed on IDEAS

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    1. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
    2. Ben Lockwood & Alan Manning, 1993. "Wage Setting and the Tax System: theory and Evidence for the UK," CEP Discussion Papers dp0115, Centre for Economic Performance, LSE.
    3. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
    4. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
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    Citations

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    Cited by:

    1. Lin, Boqiang & Jia, Zhijie, 2019. "Tax rate, government revenue and economic performance: A perspective of Laffer curve," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
    2. Schlicht, Ekkehart, 2008. "Lohnspreizung und Effizienz," Discussion Papers in Economics 2117, University of Munich, Department of Economics.
    3. Goerke, Laszlo, 2004. "Tax evasion, tax progression, and efficiency wages," Economics Letters, Elsevier, vol. 82(1), pages 35-42, January.
    4. Laszlo Goerke, 2003. "Tax Progressivity and Tax Evasion," CESifo Working Paper Series 1097, CESifo.
    5. Bo Sandemann Rasmussen, "undated". "Efficiency Wages and the Long-Run Incidence of Progressive Taxation," Economics Working Papers 2001-5, Department of Economics and Business Economics, Aarhus University.
    6. Martin Weiss, 2009. "Higher Tax Rates on Labor? Evidence from German Panel Data," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(1), pages 73-92, March.

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    More about this item

    Keywords

    taxation; unemployment; H20; H24; J64;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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