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Labor Taxation in Search Equililbrium with Home Production

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Author Info
Holmlund, Bertil () (Department of Economics)

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Abstract

Conventional models of equilibrium unemployment typically imply that proportional taxes on labor earnings are neutral with respect to unemployment as long as the tax does not affect the replacement rate provided by unemployment insurance, i.e., unemployment benefits relative to after-tax earnings. When home production is an option, the conventional results may no longer hold. This paper uses a search equilibrium model with home production to examine the employment and welfare implications of labor taxes. The employment effect of a rise in a proportional tax is found to be negative for sufficiently low replacement rates, whereas it is ambiguous for moderate and high replacement rates. Numerical calibrations of the model indicate that employment generally falls when proportional labor taxes are raised. Progressive labor taxes increase labor market tightness but have ambiguous effects on search effort and employment. The numerical calibrations indicate positive employment effects.

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Publisher Info
Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2000:1.

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Length: 31 pages
Date of creation: 17 Jan 2000
Date of revision:
Publication status: Published in German Economic Review, 2002, pages 415-430.
Handle: RePEc:hhs:uunewp:2000_001

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
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Fax: + 46 18 471 14 78
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Related research
Keywords: Home production; job search; unemployment; taxation;

Other versions of this item:

Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Engstrom, Per & Holmlund, Bertil & Kolm, Ann-Sofie, 2001. "Optimal Taxation in Search Equilibrium with Home Production," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Gabriele Cardullo & Bruno Van der Linden, 2006. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," IZA Discussion Papers 2073, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Van der Linden, Bruno & Dor, Eric, 1998. "The net effect of unemployment benefits, sanctions and training on aggregate unemployment outflows," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 07 Sep 2000. [Downloadable!]
  4. Garibaldi, Pietro & Wasmer, Etienne, 2003. "Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows," CEPR Discussion Papers 3986, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Boone, Jan & Fredriksson, Peter & Holmlund, Bertil & van Ours, Jan, 2001. "Optimal Unemployment Insurance with Monitoring and Sanctions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Lans Bovenberg, 2003. "Tax Policy and Labor Market Performance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Dan Anderberg, 2003. "Insiders, Outsiders, and the Underground Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Per Engström & Bertil Holmlund, 2007. "Worker Absenteeism in Search Equilibrium," IZA Discussion Papers 2947, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  9. Bruno Van der Linden & Eric Dor, 2003. "The net effect of unemployment benefits, sanctions and training on regular employment," Working Papers 2003-ECO-01, IESEG School of Management. [Downloadable!]
  10. Engström, Per, 2002. "Optimal Non-Linear Income Taxation in Search Equilibrium," Working Paper Series 2002:18, Uppsala University, Department of Economics. [Downloadable!]
  11. Nordström Skans, Oskar, 2001. "The effects of working time reductions on wages, actual hours and equilibrium unemployment," Working Paper Series 2001:8, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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