Taxation in the Urban Sector: Some Aspects of the Underlying Model

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:
Taxation in the Urban Sector: Some Aspects of the Underlying Model

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Some aspects are discussed of modelling the urban sector less developed countries (LDCs) that are central for taxation analysis, and have typically been underemphasized in development economics. An economy is considered in which private firms make the decisions concerning the urban wage and employment, there is urban unemployment, and individuals migrate from one sector to another (rural–urban migration). The objective is not to derive results concerning taxation but instead to highlight briefly some issues that need to be taken into account in taxation analysis for the urban sector of LDCs, and to present a general model of the urban sector. Inefficiencies that arise in the market equilibrium, and the role of tax in partially correcting these inefficiencies, are described. The chapter concludes with a brief discussion of the relationship between urban demand and supply of labour; this relationship is different from that in the conventional neoclassical model.

Keywords: labour supply; less developed countries (LDCs); market equilibrium; models; private firms; rural–urban migration; taxation; urban sector; urban unemployment; urban wages

Chapter.  4731 words.  Illustrated.

Subjects: Economic Development and Growth

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