Tax Progressivity and Tax Evasion

No 1097, CESifo Working Paper Series from CESifo

Abstract: More progressive income taxes raise employment in models of imperfectly competitive labour markets. However, this prediction is not robust to modifications of the analytical structure. For example, in an efficiency wage setting, more progressive taxes reduce profits. This induces firms to exit the market such that the positive employment effect can vanish in a framework with a constant profit constraint. In this paper, it is demonstrated for an according model that tax evasion opportunities raise the likelihood of positive employment effects due to higher tax progressivity.

Keywords: efficiency wages; employment; income tax; tax evasion; tax progressivity (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1097

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