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Taxes, benefits, and careers: Complete versus incomplete markets

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  • Ljungqvist, Lars
  • Sargent, Thomas J.

Abstract

An incomplete-market life-cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non-employment benefits. We compare aggregate and individual outcomes in this individualistic incomplete-market model with those in a comparable collectivist representative-family model with employment lotteries and complete-insurance markets. The incomplete- and complete-market structures assign leisure to different types of individuals who are distinguished by their human capital and age. These microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non-employment benefits, but remarkably, not to labor tax changes.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 1 (January)
Pages: 98-125

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Handle: RePEc:eee:moneco:v:55:y:2008:i:1:p:98-125

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Web page: http://www.elsevier.com/locate/inca/505566

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  18. Ljungqvist, Lars & Sargent, Thomas J., 2007. "Understanding European unemployment with a representative family model," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2180-2204, November.
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Citations

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Cited by:
  1. Jorge Alonso-Ortiz & Richard Rogerson, 2010. "Taxes, transfers, and employment in an incomplete markets model," CQER Working Paper 2010-07, Federal Reserve Bank of Atlanta.
  2. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2008. "Aggregate implications of indivisible labor, incomplete markets, and labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 961-979, July.
  3. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2009. "A Three State Model of Worker Flows in General Equilibrium," NBER Working Papers 15251, National Bureau of Economic Research, Inc.
  4. Ljungqvist, Lars & Sargent, Thomas J., 2007. "Understanding European unemployment with a representative family model," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2180-2204, November.
  5. Michau, Jean-Baptiste, 2014. "Optimal redistribution: A life-cycle perspective," Journal of Public Economics, Elsevier, vol. 111(C), pages 1-16.

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