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Tax Policy and Labor Market Performance

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  • Bovenberg, A.L.

    (Tilburg University, Center for Economic Research)

Abstract

In exploring the impact of tax policy on labor-market performance, the paper first investigates how tax reform impacts labor supply and equilibrium unemployment in representative agent models.The impact of tax policy on labor market performance depends importantly on various other labor-market institutions, such as minimum wage laws, wage bargaining, and unemployment benefits.In non-competitive labor markets, employment declines if a higher tax burden makes the outside option (i.e. unemployment)r elatively more attractive. Marginal tax rates typically di"er substantially across individuals.To explore the impact of specific tax policies, therefore, the paper relies on an applied general equilibrium model to investigate the consequences of tax reform with heterogeneous households.The model simulations reveal several trade-o"s between various objectives, such as cutting unemployment, stimulating the participation of secondary workers into the labor force, raising the quality and quantity of labor supply, and establishing an equitable income distribution.The paper also analyses how efficiency considerations a"ect the optimal progressiveness of labor income taxes.Finally, the optimal progression of the labor income tax is investigated in the presence of search unemployment, heterogeneous households and distributional concerns. Series: CentER Discussion Paper

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2003-90.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200390

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Web page: http://center.uvt.nl

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Keywords: labour market; tax reform; unemployment; wages; general equilibrium; tax policy;

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Citations

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Cited by:
  1. Michael T. Feil, 2006. "Funding public health care: A flat-rate premium might be bad for employment," Economics Bulletin, AccessEcon, vol. 10(3), pages 1-10.
  2. Holmlund, Bertil & Söderström, Martin, 2007. "Estimating Income Responses to Tax Changes: A Dynamic Panel Data Approach," Working Paper Series 2007:25, Uppsala University, Department of Economics.
  3. Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.
  4. Florian Baumann & Nikolai Stähler, 2006. "Financing Unemployment Benefits: Dismissal versus Employment Taxes," LABOUR, CEIS, vol. 20(3), pages 433-451, 09.
  5. Frederick van der Ploeg, 2004. "The Welfare State, Redistribution and the Economy, Reciprocal Altruism, Consumer Rivalry and Second Best," CESifo Working Paper Series 1234, CESifo Group Munich.

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