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Employment- and Growth Effects of Tax Reforms

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  • Jochen Michaelis

    () (Department of Economics, University of Kassel)

  • Angela Birk

    () (HWWA, University of Hamburg, Havard University, Department of Economics)

Abstract

This paper explores how revenue-neutral tax reforms impact employment and economic growth in a model of endogenous growth and search frictions on the labor market. We analyze how savings and the incentive to create new jobs are affected by tax swaps between wage income taxes, payroll taxes, capital income taxes and taxes levied on capital costs. In our framework, the payroll tax is found to be neutral. If this tax is used to finance a cut in the capital income tax, we will observe an increase in both growth and, via the capitalization effect, employment. Most other tax reforms, however, imply a trade-off between employment and growth

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Bibliographic Info

Paper provided by University of Kassel, Institute of Economics in its series Discussion Papers in Economics with number 58/04.

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Length: 21 pages
Date of creation: Jun 2004
Date of revision:
Publication status: Published in Economic Modelling, Vol. 23 (2006), S. 909-925.
Handle: RePEc:kas:wpaper:2004-58

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Keywords: search unemployment; growth; tax reform;

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