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A Tax-Based Test for Nominal Rigidities

James M. Poterba, Julio J. Rotemberg and Lawrence H. Summers
The American Economic Review
Vol. 76, No. 4 (Sep., 1986), pp. 659-675
Stable URL: http://www.jstor.org/stable/1806065
Page Count: 17
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A Tax-Based Test for Nominal Rigidities
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Abstract

In macroeconomic models with flexible wages and prices, whether a tax is levied on producers or consumers does not affect its ultimate incidence. This equivalence breaks down in the presence of short-run nominal rigidities. Using both British and American data, we provide evidence against complete wage and price flexibility.

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