In Belgium the corporate tax rate is 33 percent, while in the Netherlands it is about 25 percent. In labor markets in the stylized DSGE model, you would expect ________ , ceteris paribus, because ________.

Question

Quizplus · Accepted Answer

According to the stylized DSGE model, a higher corporate tax rate in Belgium than in the Netherlands would lead to lower wages in Belgium, ceteris paribus, because higher taxes are reflected in lower productivity (similar to a decrease in TFP), which reduces the marginal product of labor and hence, lowers wages. The other options are incorrect because they either do not directly relate to the impact of corporate tax rates on labor markets or are inconsistent with the stylized model.

In Belgium the Corporate Tax Rate Is 33 Percent, While