(DP 1998-11) A Theoretical Derivation of the Laffer Curve and the Effect of the Tax on Wage and Employment

Casimiro V. Miranda, Jr.

Abstract


The Laffer curve showing tax revenue as a function of the tax on the prevailing money wage is derived from the aggregate supply of labor function. Consequently, the possible trade-off between tax revenue and employment (or total output) is considered. Then the tax is shown to result in wage rigidity downward even under competitive condition. Some policy implications and relevant theoretical issues are noted.

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