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Selective Reductions in Labor Taxation: Labor Market Adjustments and Macroeconomic Performance

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  • Batyra, Anna

    ()
    (Université catholique de Louvain)

  • Sneessens, Henri R.

    ()
    (University of Luxembourg)

Abstract

We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and non-targeted tax cuts, both with or without over-education effects. Introducing over-education changes substantially the employment, productivity and welfare effects of a tax cut, although tax cuts targeted on the least skilled workers always have larger effects.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5013.

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Length: 15 pages
Date of creation: Jun 2010
Date of revision:
Publication status: published in: Journal of Policy Modeling, 2010, 32(4), 531–543
Handle: RePEc:iza:izadps:dp5013

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Keywords: search unemployment; job competition; job destruction; job creation; minimum wage; taxation; computable general equilibrium models;

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References

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Cited by:
  1. Pascal Belan & Martine Carré & Stéphane Gregoir, 2007. "Subsidizing low-skilled jobs in a dual labor market," THEMA Working Papers 2007-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. Raphael A. Espinoza & Esther Pérez Ruiz, 2014. "Labor Tax Cuts and Employment: A General Equilibrium Approach for France," IMF Working Papers 14/114, International Monetary Fund.

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