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 University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 200409.
Date of creation: 2004
Date of revision:
Other versions of this item:
- Heijdra, B.J. & Ligthart, J.E., 2004. "Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach," Discussion Paper 2004-89, Tilburg University, Center 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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