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.
Similar content being viewed by others
References
Hoel, M. (1990): “Efficiency Wages and Income Taxes”.Journal of Economics/Zeitschrift für Nationalökonomie 51: 89–99.
Koskela, E., and Vilmunen, J. (1996): “Tax Progression Is Good for Employment in Popular Models of Trade Union Behaviour”.Labour Economics 3: 65–80.
Lockwood, B., and Manning, A. (1993): “Wage Setting and the Tax System: Theory and Evidence for the United Kingdom”.Journal of Public Economics 52: 1–29.
Malcomson, J. M., and Sator, N. (1987): “Tax Push Inflation in a Unionized Labour Market”.European Economic Review 31: 1581–1596.
Sorensen, P. B. (1977): “Optimal Tax Progressivity in Imperfect Labour Markets”. Paper prepared for the 53rd Congress of the IIPF, Kyoto, August 25–28, 1997.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Fuest, C., Huber, B. Efficiency wages, employment, and the marginal income-tax rate: A note. Zeitschr. f. Nationalökonomie 68, 79–84 (1998). https://doi.org/10.1007/BF01237465
Received:
Revised:
Issue Date:
DOI: https://doi.org/10.1007/BF01237465