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Title: Three Theorems on Inflation Taxes and Marginal Employment Subsidies
Authors: Oswald, Andrew
Issue Date: 1-Sep-1983
Citation: Economic Journal, Vol. 94, No. 375, September 1984
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 167
Abstract: The paper studies the microeconomic theory of inflation taxes and marginal employment subsidies. It proves that under very weak assump- tions (i) an inflation tax will reduce the 1ong—run equilibrium wage or price and (ii) that a marginal employment subsidy will raise the long- run equilibrium employment level. The theorems, which show the policies’ formal similarities, are illustrated with examples. One caveat is also raised: in a competitive industry (rather than a single firm), with free entry and exit, a marginal employment subsidy might reduce the total number of jobs. The paper also proves (iii) that in special circumstances a tax on inflation is exactly equivalent to a marginal employment subsidy.
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