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Excess Wages Tax

Author

Listed:
  • Mr. S. Nuri Erbas
  • Mr. Alan A. Tait

Abstract

Excess wages tax (EWT) is a tax-based incomes policy instrument introduced in many centrally-planned economies and still used in some FSU and Eastern European countries in transition. The main macroeconomic goal of EWT is to curb inflationary pressures by penalizing through taxation the “excessive” wage awards granted by enterprises in the course of wage and price liberalization. In this paper, effects of EWT on the behavior of a profit-maximizing enterprise under monopsony, its incidence on wages and profits, and its impact on inflation are analyzed. The effect of EWT on an enterprise that maximizes workers’ income is also examined with some observations on EWT’s impact on managerial behavior. Finally, recent experience with EWT is assessed and compared to that suggested by the model.

Suggested Citation

  • Mr. S. Nuri Erbas & Mr. Alan A. Tait, 1995. "Excess Wages Tax," IMF Working Papers 1995/017, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/017
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    Cited by:

    1. Jorge Martinez-Vazquez & Robert McNab, 1997. "Tax Reform in Transition Economies: Experiences and Lessons," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9706, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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