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Taxing Overtime or Subsidizing Employment

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  • Osuna Victoria

    ()
    (Universidad Pablo de Olavide)

Abstract

This paper compares the macroeconomic implications of overtime taxation and wage and employment subsidies in a dynamic general equilibrium model in which hours and bodies are imperfect substitutes due to team work and externality-based commuting costs. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase as taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view

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File URL: http://www.degruyter.com/view/j/bejm.2009.9.1/bejm.2009.9.1.1892/bejm.2009.9.1.1892.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 9 (2009)
Issue (Month): 1 (October)
Pages: 1-28

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Handle: RePEc:bpj:bejmac:v:9:y:2009:i:1:n:41

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