A Tax‐Wage Bargain in Australia:Is a Free Lunch Possible?

Warner Corden and Peter Dixon

The Economic Record, 1980, vol. 56, issue 154, 209-221

Abstract: This paper examines the feasibility of a tax‐wage bargain in Australia designed to increase employment without generating excess product demand while government expenditure. investment and the balance of trade are held constant. It is assumed that tax cuts would lower pre‐tax real wages while keeping post‐tax real wages constant, and that the lower wage costs would increase potential output and employment along neoclassical lines. The question is whether product demand would expand more or less than potential supply. Estimates from the ORANI model of the IMPACT project are used to obtain a relationship between real wage costs and potential output.

Date: 1980
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