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Commodity Taxes, Wage Determination and Profits

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  • Sophia Delipalla
  • Peter Sanfey

Abstract

We examine the effects of two different types of commodity taxation, specific and ad valorem, on wages and profits. We analyze two models of wage determination, one with efficiency wage setting and one with bargaining between a union and a firm. In the former, a (locally) revenue-neutral shift from specific to ad valorem taxation leads to an increase in both employment and wages, and a reduction in profitability. In the bargaining case however, the effect on wages and profits may be reversed: predominantly ad valorem taxation raises employment but lowers wages, and under certain circumstances, the net effect can lead to an increase in profits.

Suggested Citation

  • Sophia Delipalla & Peter Sanfey, 1998. "Commodity Taxes, Wage Determination and Profits," Studies in Economics 9816, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:9816
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    Cited by:

    1. João Ricardo Faria, 2004. "The Effects Of Taxes On Labour In A Dynamic Efficiency Wage Model," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 286-297, September.
    2. Melike Bildirici & Elçin Aykaç Alp, 2012. "Minimum wage is efficient wage in Turkish labor market: TAR–cointegration analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(4), pages 1261-1270, June.

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    More about this item

    Keywords

    Commodity taxation; specific tax; ad valorem tax; efficiency wage; bargaining;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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