Tax policies and unemployment in a dynamic efficiency wage model

In this paper we make a dynamic analysis of the effects of various tax poli cies on the unemployment of an economy with a labour-efficiency function wh ich shifts over time. Stock of knowledge, which is produced as a durable pu blic good, accumulates over time; and the efficiency of the worker varies p ositively with the stock of knowledge in addition to wage and unemployment. We analyze the accumulation of physical capital and human capital stock (s tock of knowledge) and the properties of long-run equilibrium of the system . The comparative steady-state effects on unemployment with respect to chan ge in various tax rates are analyzed assuming that the production of the pu blic good (educational output) is financed by the tax revenue, In many case s, these results are different from the corresponding comparative static re sults.