Title

Three Theorems on Inflation Taxes and Marginal Employment Subsidies

Author(s)

Andrew J. Oswald Andrew Oswald (Princeton University and Oxford University)

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.

Creation Date

1983-09

Section URL ID

IRS

Paper Number

167

URL

https://dataspace.princeton.edu/bitstream/88435/dsp01pz50gw09f/1/167.pdf

File Function

Jel

N00

Keyword(s)

Suppress

false

Series

1