Fiscal Policy: Labour Income Tax

Angus Chu

Chapter 6 in Advanced Macroeconomics:An Introduction for Undergraduates, 2020, pp 45-54 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, we continue our analysis of fiscal policies in the neoclassical growth model. In Chapter 5, we considered a lump-sum tax, which is a very rare fiscal policy instrument in reality. Therefore, we now consider a labour income tax, which is a more realistic tax instrument. Once again, we use in this policy analysis the neoclassical growth model with elastic labour supply, which is a crucial feature because the contractionary effects of labour income tax operate through a substitution effect on labour supply.

Keywords: Macroeconomics; Dynamic General Equilibrium; Economic Growth; Endogenous Technological Change; Monetary Policy; Fiscal Policy; Business Cycles; Unemployment; Market Failure; The Neoclassical Growth Model; The Romer Model; The Schumpeterian Growth Model; The Solow Growth Model; The Ramsey Model; The New Keynesian Model (search for similar items in EconPapers)
JEL-codes: E6 E62 E66 F4 F43 O11 (search for similar items in EconPapers)
Date: 2020
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