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As the model highlights the role of fiscal policies to explain hysteresis, we also study the behavior of the direct tax rates.
Supplements to income tax became the principal source of local taxation, whereas taxation on property was the most important direct tax at a local level.
European experience seems to fit with the case where direct tax rates are used to balance the government budget constraint and different equilibria exist.
When government spending is treated as endogenous, direct tax rates are constant and, hence, exhibit an acyclical behavior.
It can be shown that both assumptions can be removed and yet the reference wage will decrease with the direct tax rate.
Thus, according to this model, those fiscal policies not using the direct tax rate to balance the government budget constraint are a superior fiscal policy.
The most significant innovations involved the direct tax.
We propose an alternative to the existing patent system, instead rewarding the innovating firm with direct tax credits in exchange for marginal cost pricing.
If the problem with excises was the "swarm" of officials necessary to collect them, a direct tax could only be worse.
Obviously, the endogenous direct tax rate is low and hence the net of taxes interest rate is large in equilibrium.
When this happens, the direct tax rate reduces the reference wage growth and, hence, decreases wages. 25.
Finally, let's turn our attention to the path of the direct tax rates.
The objective is to provide a system of direct tax credits approximating the social value of a specific innovation in exchange for marginal cost pricing.
The behavior of the direct tax rate is also examined.
Advocates of the impost/tariff constantly raised the specter of a direct tax.
