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Efficiency wages and tax policy

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Abstract

The conventional belief suggests that a tax increase can be regarded as an anti-inflation device because it reduces the aggregate demand. This paper makes a new attempt to reexamine the belief by introducing the principal tenets of the efficiency wage hypothesis. It is found that, in the context of an efficiency wage model, a rise in the income tax may stimulate the domestic price level, rather than depress it.

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Authors and Affiliations

  1. Academia Sinica, Taiwan

    Ching-Chong Lai

  2. Fu-Jen Catholic University, Taiwan

    Wen-Ya Chang

Authors
  1. Ching-Chong Lai
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  2. Wen-Ya Chang
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Lai, CC., Chang, WY. Efficiency wages and tax policy. Atlantic Economic Journal 21, 55–59 (1993). https://doi.org/10.1007/BF02302328

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  • DOI: https://doi.org/10.1007/BF02302328

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