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Firing Costs and Business Cycle Fluctuations

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  • Marcelo Veracierto

Abstract

This article considers a real business cycle model with establishment level dynamics and uses it to analyze the effects of firing taxes. It finds that firing taxes can have significant consequences on business cycle fluctuations, that the largest effects are on aggregate employment, and that even relatively small firing taxes have substantial effects. A significant contribution of the article is computational: It describes how to use standard linear-quadratic methods to solve for a stochastic equilibrium of an (S,s) economy with tax distortions. Copyright 2008 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 445c.

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Date of creation: 2004
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Handle: RePEc:red:sed004:445c

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 6, Centro de Economía Aplicada, Universidad de Chile.
  3. Jeffrey R. Campbell & Jonas D.M. Fisher, 1996. "Aggregate Employment Fluctuations with Microeconomic Asymmetries," NBER Working Papers 5767, National Bureau of Economic Research, Inc.
  4. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 25(1), pages 11-44, January.
  5. Veracierto, Marcelo, 2001. "Employment Flows, Capital Mobility, and Policy Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 571-95, August.
  6. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  7. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  8. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(1), pages 48-71, January.
  9. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  10. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(5), pages 915-38, October.
  11. Cabrales, Antonio & Hopenhayn, Hugo A., 1997. "Labor-market flexibility and aggregate employment volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 46(1), pages 189-228, June.
  12. Roberto M Samaniego, 2003. "Employment Protection, Exit and Macroeconomic Dynamics," Computing in Economics and Finance 2003, Society for Computational Economics 28, Society for Computational Economics.
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