Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach
AbstractThe paper studies simple strategies of labor tax reform in a search and matching model of the labor market featuring endogenous labor supply.Changing the composition of the tax wedge|that is, reducing a payroll tax and increasing a progressive wage tax such that the marginal tax wedge remains unaffected|increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations.A strategy of replacing employment taxes by payroll taxes increases employment and reduces the equilibrium unemployment rate, while the effect on public revenue is ambiguous.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-89.
Date of creation: 2004
Date of revision:
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Web page: http://center.uvt.nl
labour market; taxation; unemployment; matching;
Other versions of this item:
- Heijdra, Ben J. & Ligthart, Jenny E., 2004. "Labor tax reform and equilibrium unemployment: a search and matching approach," CCSO Working Papers 200409, University of Groningen, CCSO Centre for Economic Research.
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
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