Chapter

The Impact of Urban Wage and Employment Determination on Taxation Policies

Raaj K. Sah and Joseph E. Stiglitz

in Peasants versus City-Dwellers

Published in print February 2002 | ISBN: 9780199253579
Published online January 2005 | e-ISBN: 9780191601682 | DOI: http://dx.doi.org/10.1093/0199253579.003.0010
The Impact of Urban Wage and Employment Determination on Taxation Policies

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A general model (a reduced form formulation) for determining urban wages in less developed countries (LDCs) is presented, and, taking this into account, an analysis is made on the nature of urban–rural prices with an endogenous urban wage (i.e. the case in which sector-specific taxation policies are feasible), and of the price scissors (the price of industrial (urban) goods relative to that of agricultural (rural) goods) with endogenous wages (i.e. the case in which only economy-wide, rather than sector-specific, taxation policies are feasible). There is a brief discussion of whether an endogenous urban wage or a government-controlled urban wage is more appropriate for LDCs, and the former is favoured. There is also a note on fixing the urban wage in terms of the utility level. Lastly, a general formulation is presented of urban unemployment, and of tax-induced effects upon it.

Keywords: less developed countries (LDCs); price scissors; rural prices; taxation; taxation policy; taxes; unemployment; urban prices; urban sector; urban unemployment; urban wages

Chapter.  8228 words. 

Subjects: Economic Development and Growth

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