In an efficiency wage economy with variable profits, a shift from payroll to employment taxes will reduce unemployment if the tax level is held constant at the initial wage. However, unemployment will rise if firms are constrained to zero profits in the long-run and if tax revenues are constant....

This paper explores how revenue-neutral tax reforms impact employment and economic growth in models of exogenous and endogenous growth and search frictions on the labor market. We show that (i) a cut in the payroll tax financed by an increase in the wage tax lowers both equilibrium employment...

In an efficiency wage economy with variable profits, a shift from payroll to employment taxes will reduce unemployment if the tax level is held constant at the initial wage. However, unemployment will rise if firms are constrained to zero profits in the long-run and if tax revenues are constant....