This chapter has set out in detail the models which are employed below in order to analyse the labour market effects of changes in tax rates and in alterations in the tax structure. The fundamental mechanisms underlying the different approaches have been pointed out. Moreover, vital assumptions have been emphasised. By delineating the models which are used for the subsequent analyses, implicitly statements have also been made about topics or aspects which this study does not cover. For example, all workers and firms are identical ex ante. However, ex-post differences are allowed for, inter alia, if unemploy ment occurs or if some firms have to close down. These restrictions indicate areas of future research insofar as that the findings for homogeneous workers or firms yield an unambiguous proposal for changes in tax rates or the tax structure in order to promote employment. This is because it would be desir able for tax policy to know whether the predicted effects also hold in a world with ex-ante heterogeneity. Furthermore, the product market has not played a role. Therefore, repercussions from labour markets outcomes on product demand - and vice versa - are absent. 55 Moreover, neither the process of capital accumulation, be it physical or human capital, nor substitution pos sibilities between labour and capital in the firms' production function are taken into account. Finally, international competition is not modelled.
1 Aims and Scope.- 2 Basic Models.- 2.1 Fundamental Assumptions.- 2.1.1 Firms.- 2.1.2 Workers.- 2.1.3 Trade Union.- 2.1.4 Nash-Bargaining Solution.- 2.2 Competitive Labour Maekrt.- 2.3 Union-Firm Interaction.- 2.3.1 Right-to-Manage Model with Exogenous Trade Union Membership.- 2.3.2 Efficient Bargaining with Exogenous Trade Union Membership.- 2.3.3 Right-to-Manage Model with Endogenous Trade Union Membership.- 184.108.40.206 Foundations.- 220.127.116.11 Membership Indifference Curve.- 18.104.22.168 Wage Bargaining.- 22.214.171.124 Equilibrium.- 2.4 Efficiency Wage Models.- 2.4.1 Effort Function.- 2.4.2 Profit Maximisation.- 2.4.3 Equilibrium.- 2.4.4 Long-run Perspective.- 2.5 Summary.- 3 Income Taxes.- 3.1 Introduction.- 3.2 Compertitive Labour Market.- 3.3 Wage Bargaining with Exogenous Trade Union Membership.- 3.3.1 Variations in Tax Levels.- 3.3.2 Revenue-neutral Tax Reforms.- 3.3.3 Income Taxes in a Wage Bargaining Model with Exogenous Trade Union Membership.- 3.4 Efficient Bargaining.- 3.4.1 Variations in Tax Levels.- 3.4.2 Revenue-neutral Tax Reforms.- 3.4.3 Income Taxes in an Efficient Bargaining Model.- 3.5 Wage Bargaining with Endogenous Trade Union Membership.- 3.5.1 Variations in Tax Levels.- 3.5.2 Revenue-neutral Tax Reforms.- 3.5.3 Income Taxes in a Social Custom Model.- 3.6 Efficiency Wages.- 3.6.1 Short-run.- 126.96.36.199 Variations in Tax Levels.- 188.8.131.52 Revenue-neutral Tax Reforms.- 184.108.40.206 Income Taxes in an Efficiency Wage World with a Constant Number of Firms.- 3.6.2 Long-run.- 220.127.116.11 Variations in Tax Levels.- 18.104.22.168 Revenue-neutral Tax Reforms.- 22.214.171.124 Income Taxes in a Constant Profit World.- 3.6.3 Income Taxes in Efficiency Wage Models.- 3.7 Income Taxes in Imperfectly Competitive Labour Markets.- 4 Taxes on Labour Costs.- 4.1 Introduction.- 4.2 Competitive Labour Market.- 4.3 Wage Bargaining with Exogenous Trade Union Membership.- 4.3.1 Variations in Tax Levels.- 4.3.2 Revenue-neutral Tax Reforms.- 126.96.36.199 Ex-Ante Constancy of Tax Level.- 188.8.131.52 Ex-Post Constancy of Tax Level or Tax Revenues.- 4.3.3 Summary of Partial Equilibrium Effects.- 4.3.4 General Equilibrium Repercussions.- 4.4 Efficient Bargaining.- 4.4.1 Variations in Tax Levels.- 4.4.2 Revenue-neutral Tax Reforms.- 4.4.3 Taxes on Labour Costs in an Efficient Bargaining Model.- 4.5 Wage Bargaining with Endogenous Trade Union Membership.- 4.5.1 Variations in Tax Levels.- 4.5.2 Revenue-neutral Tax Reforms.- 184.108.40.206 Ex-Ante Constancy of Tax Levels.- 220.127.116.11 Ex-Post Constancy of Tax Payments or Tax Revenues.- 4.5.3 Taxes on Labour Costs in a Social Custom Model.- 4.6 Efficiency Wages.- 4.6.1 Short-run.- 18.104.22.168 Variations in Tax Levels.- 22.214.171.124 Revenue-neutral Tax Reforms.- 4.6.2 Long-run.- 126.96.36.199 Variations in Tax Levels.- 188.8.131.52 Revenue-neutral Tax Reforms.- 184.108.40.206 Taxes on Labour Costs in a Constant Profit World.- 4.6.3 Labour Taxation in Efficiency Wage Models.- 4.7 Taxes on Labour Costs in Imperfectly Competitive Labour Markets.- Appendix to Chapter 4.- 5 Tax on Revenues.- 5.1 Introduction.- 5.2 Competitive Labour Market.- 5.3 Wage Bargaining with Exogenous Trade Union Membership.- 5.4 Efficient Bargaining.- 5.5 Wage Bargaining with Endogenous Trade Union Membership.- 5.6 Efficiency Wages.- 2.6.1 Short-run.- 5.6.2 Long-run.- 5.6.3 Tax on Revenues in Efficiency Wage Models.- 5.7 Tax on Revenues in Imperfectly Competitive Labour Markets.- 6 Comprehensive Tax Reforms.- 6.1 Introduction.- 6.2 The Wedge between Labour Costs and Net Wages.- 6.2.1 Selective Survey.- 6.2.2 Competitive Labour Market.- 6.2.3 Collective Wage Determination.- 6.2.4 Efficiency Wage Economy.- 220.127.116.11 Short-run.- 18.104.22.168 Longer-run Perspective.- 6.2.5 Social Security Contributions and Alternative Income.- 6.3 Value-added Tax versus Social Security Contributions.- 6.3.1 Introduction.- 6.3.2 Specification of the Benefit System.- 6.3.3 Changes of Tax Rates.- 6.3.4 Payroll Tax versus VAT.- 6.3.5 An Employment-Enhancing Reduction in Employee's Contributions.- 6.3.6 A Reduction in Contributions Shar
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