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 reversal of employment effects occurs because the shift in … the firm's profits cannot change, the tax increase will cause some firms to close down and unemployment will rise. Thus …

In a unionised labour market, a substitution of a payroll for an income tax will not alter employment if tax … especially be the case if the fine for tax evasion depends on undeclared income or on wage payments or if withholding regulations … prevent optimal evasion choices. In such instances, tax evasion opportunities make the legal incidence of taxes an important …