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Payroll Taxes, Social Insurance and Business Cycles

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  • Michael C. Burda
  • Mark Weder

Abstract

Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the model’s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment. herunterladen.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-042.

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Length: 41 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2010-042

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Keywords: Business cycles; labor markets; payroll taxes; unemployment; consumptiontightness puzzle;

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References

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  1. Burda, Michael C. & Weder, Mark, 1999. "Complementarity of labor market institutions, equilibrium unemployment and the persistence of business cycles," SFB 373 Discussion Papers, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1999,49, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  3. Mark Gertler & Antonella Trigari, 2006. "Unemployment Fluctuations With Staggered Nash Wage Bargaining," NBER Working Papers 12498, National Bureau of Economic Research, Inc.
  4. Monique Ebell, 2008. "Resurrecting the participation margin," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19570, London School of Economics and Political Science, LSE Library.
  5. Marcus Hagedorn & Iourii Manovskii, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," 2005 Meeting Papers, Society for Economic Dynamics 460, Society for Economic Dynamics.
  6. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  7. James S. Costain & Michael Reiter, 2003. "Business cycles, unemployment insurance and the calibration of matching models," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 872, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2006.
  8. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(6), pages 1143-1157, September.
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Citations

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Cited by:
  1. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," NBER Working Papers 17187, National Bureau of Economic Research, Inc.
  2. Hautsch, Nikolaus & Malec, Peter & Schienle, Melanie, 2010. "Capturing the zero: A new class of zero-augmented distributions and multiplicative error processes," CFS Working Paper Series, Center for Financial Studies (CFS) 2010/19, Center for Financial Studies (CFS).
  3. Vladimir Panov, 2010. "Estimation of the signal subspace without estimation of the inverse covariance matrix," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-050, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Franziska Schulze, 2010. "Spatial Dependencies in German Matching Functions," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-054, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Szymon Borak & Adam Misiorek & Rafal Weron, 2010. "Models for Heavy-tailed Asset Returns," HSC Research Reports, Hugo Steinhaus Center, Wroclaw University of Technology HSC/10/01, Hugo Steinhaus Center, Wroclaw University of Technology.
  6. Enno Mammen & Christoph Rothe & Melanie Schienle, 2010. "Nonparametric Regression with Nonparametrically Generated Covariates," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Janek, Agnieszka & Kluge, Tino & Weron, Rafal & Wystup, Uwe, 2010. "FX Smile in the Heston Model," MPRA Paper 25491, University Library of Munich, Germany.
  8. Christian Basteck & Tijmen R. Daniëls, 2010. "Every Symmetric 3 x 3 Global Game of Strategic Complementarities Is Noise Independent," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-061, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. Ralf Sabiwalsky, 2010. "Executive Compensation Regulation and the Dynamics of the Pay-Performance Sensitivity," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-051, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Nicole Wiebach & Lutz Hildebrandt, 2010. "Context Effects as Customer Reaction on Delisting of Brands," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-056, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  11. Maria Grith & Volker Krätschmer, 2010. "Parametric estimation of risk neutral density functions," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2010-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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