Taxation, unemployment and working time in models of economic growth
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This paper combines collective bargaining over wages and working time with models of endogenous and neoclassical growth. Public expenditure is funded by taxes on capital and labour supplied by infinitely-lived households in a closed economy. Taxes on labour are generally inefficient in both growth models, there is a “dynamic Laffer Curve”, and employment is increased by a reduction of working hours below the collective bargaining level – except in the case of a monopoly union. Although growth is maximised by competitive (efficient) hours, welfare-optimal working time is below the collective bargain when union are ‘too weak’, and vice-versa.
School of Economics and Finance discussion paper series ; 0112
Working or discussion paper
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