Bargaining frictions, labor income taxation, and economic performance
AbstractThis paper is an attempt to explain differences in economic performance between a subset of OECD countries. We classify countries in terms of their degree of rigidity in the labor market, and use a matching model with labor/leisure choice, bargaining frictions, and labor income taxation to capture these rigidity differences. Added flexibility improves economic performance in different ways depending on whether income taxation is high or low. Feeding income taxation rates estimated from the countries at hand, we find that the model is able to replicate the observed rigidity levels. The model is also shown to reproduce well cross-country differences in non-employment population ratios and the share of part-time jobs. In the absence of rigidity differences, taxation shows little promise to replicate cross-country differences, as it has insufficient quantitative effects on production and productivity. However, the interaction of rigidity and income taxation is crucial in explaining the empirical patterns of the non-employment rate and of the share of part-time jobs.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 54 (2010)
Issue (Month): 6 (August)
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Web page: http://www.elsevier.com/locate/eer
Models of search and matching Bargaining frictions Economic performance Labor market institutions Part-time jobs Labor market rigidities;
Other versions of this item:
- Stéphane Auray & Samuel Danthine, 2008. "Bargaining Frictions, Labor Income Taxation and Economic Performance," Cahiers de recherche 0803, CIRPEE.
- Stéphane Auray & Samuel Danthine, 2009. "Bargaining Frictions, Labor Income Taxation, and Economic Performance," Cahiers de recherche 09-20, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
- Stéphane Auray & Samuel Danthine, 2008. "Bargaining Frictions, Labor Income Taxation and Economic Performance," Working Papers 2008-1, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
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