Some further results on Rosen and Quandt's labor market model

An economy with a non-vertical long-run Phillips-curve defined for employment and the growth rate of real disposable wage is assumed. Steady-state effects of long-run gradual changes in the tax rate and public expenditure are analyzed. The slower the tax rate increases (or the faster it is reduced) the higher the steady-state employment level, the higher the inflation rate, and the larger the trade deficit. An increase in the growth rate of public expenditure has the same effects. A combined reduction in tax increases and public expenditure may increase steady-state employment, reduce inflation and improve the trade balance.