tax wedge definition
tax wedge on average incomes means that real take-home pay is lower than the pre-tax real wage; if that wedge increases, then take-home pay and thus the feasible growth of real consumption grows more slowly. Changes in the tax wedge may affect not only the bargaining stance of organized workers but also individual labor-supply decisions, since a
tax wedge on average incomes means that real take-home pay is lower than the pre-tax real wage; if that wedge increases, then take-home pay and thus the feasible growth of real consumption grows more slowly. Changes in the tax wedge may affect not only the bar- gaining stance of organized workers but also individual labor-supply decisions, since a high tax level may decrease the incentive to work, particularly if unemployment benefits are gener- ous. Table 1 indicates that there were substantial increases in the tax wedge in the 1970s, fol- lowed by relative stability in the 1980s and 1990s.