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- Title
Comparing TIP to Wage Subsidies.
- Authors
Nichols, Donald A.
- Abstract
The article analyzes the possible effects of a tax-based incomes policy (TIP) and compares them to the effects of a wage subsidy or a decreased payroll tax. The most widely reported versions of the TIP are those in which the corporate tax rate is made to vary with the rate of wage increase offered by the firm. A compensation based TIP would rest evenly on each dollar of labor compensation, meaning that a firm would have twice the incentive to hold down the wages on a high wage worker as on one earning half as much. A profits based TIP would have this same incentive if the wage rate used for tax purposes was simply an unweighted average of the wages paid to all classes of employees. It is important to interpret correctly the result concerning the similarities between a TIP and wage subsidies. The important result for policy purposes is not that under certain highly restrictive conditions one version of TIP and one version of a wage subsidy are exactly the same or exactly the opposite. In summary, TIP is one of a variety of policies that can influence the demand for labor. If we are to be sure that these policies do not work at cross purposes, they should be analyzed simultaneously.
- Subjects
INCOME; PAYROLL tax; TAXATION; WAGES; INCOMES policy (Economics); LABOR market; LABOR incentives
- Publication
American Economic Review, 1979, Vol 69, Issue 2, p207
- ISSN
0002-8282
- Publication type
Article