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Equilibrium Search And Tax Credit Reform

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  • Andrew Shephard

Abstract

An empirical equilibrium job search model with wage posting is developed to analyze the impact of U.K. tax reforms. The model allows for a rich characterization of the labor market, with hours responses, accurate representations of the tax and transfer system, and both worker and firm heterogeneity. The British Working Families' Tax Credit and contemporaneous reforms are predicted to increase employment, with equilibrium effects found to be relatively modest. The model is used to assess the impact of alternative policies, with equilibrium effects shown to become important as the generosity of tax credits is increased.

Suggested Citation

  • Andrew Shephard, 2017. "Equilibrium Search And Tax Credit Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(4), pages 1047-1088, November.
    • Handle: RePEc:wly:iecrev:v:58:y:2017:i:4:p:1047-1088
    DOI: 10.1111/iere.12245
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    Cited by:

    1. Niklas Engbom & Christian Moser, 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," American Economic Review, American Economic Association, vol. 112(12), pages 3803-3847, December.
    2. Haywood, Luke & Neumann, Michael, 2021. "Equilibrium effects of tax exemptions for low pay," Labour Economics, Elsevier, vol. 69(C).
    3. Ghazala Azmat, 2019. "Incidence, Salience and Spillovers: The Direct and Indirect Effects of Tax Credits on Wages," Post-Print hal-03567413, HAL.
    4. Bradley, Jake & Kügler, Alice, 2019. "Labor market reforms: An evaluation of the Hartz policies in Germany," European Economic Review, Elsevier, vol. 113(C), pages 108-135.
    5. Gürtzgen, Nicole & Blömer, Maximilian & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard, 2016. "Estimating an Equilibrium Job Search Model for the German Labour Market," VfS Annual Conference 2016 (Augsburg): Demographic Change 145950, Verein für Socialpolitik / German Economic Association.
    6. Hanming Fang & Andrew J. Shephard, 2019. "Household Labor Search, Spousal Insurance, and Health Care Reform," NBER Working Papers 26350, National Bureau of Economic Research, Inc.
    7. Gabriela Galassi, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," Staff Working Papers 21-15, Bank of Canada.
    8. Ghazala Azmat, 2019. "Incidence, salience, and spillovers: The direct and indirect effects of tax credits on wages," Quantitative Economics, Econometric Society, vol. 10(1), pages 239-273, January.
    9. Ghazala Azmat, 2019. "Incidence, Salience and Spillovers: The Direct and Indirect Effects of Tax Credits on Wages," SciencePo Working papers Main hal-03567413, HAL.
    10. Kazuhiko Sumiya & Jesper Bagger, 2022. "Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform," Economics Working Papers 2022-03, Department of Economics and Business Economics, Aarhus University.
    11. repec:hal:spmain:info:hdl:2441/cjhqfnej9843a5mf27aq9dj2s is not listed on IDEAS
    12. Breda, Thomas & Haywood, Luke & Wang, Haomin, 2022. "Equilibrium Effects of Payroll Tax Reductions and Optimal Policy Design," IZA Discussion Papers 15810, Institute of Labor Economics (IZA).
    13. Galassi, Gabriela, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," IZA Discussion Papers 14248, Institute of Labor Economics (IZA).
    14. Ghazala Azmat, 2018. "Incidence, Salience and Spillovers: The Direct and Indirect Effects of Tax Credits on Wages," SciencePo Working papers hal-03567413, HAL.
    15. Blömer, Maximilian J. & Guertzgen, Nicole & Pohlan, Laura & Stichnoth, Holger & van den Berg, Gerard J., 2018. "Unemployment effects of the German minimum wage in an equilibrium job search model," ZEW Discussion Papers 18-032, ZEW - Leibniz Centre for European Economic Research.

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