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The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

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  • Domenico Ferraro
  • Giuseppe Fiori

Abstract

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of the unemployment rates to tax changes varies significantly across age groups: the unemployment rate response of the young is nearly twice as large as that of the old. This heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the unemployment rate to tax cuts. We find that the aging of the baby boomers considerably reduces the effects of tax cuts on aggregate unemployment.

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  • Domenico Ferraro & Giuseppe Fiori, 2020. "The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 167-193, April.
    • Handle: RePEc:aea:aejmac:v:12:y:2020:i:2:p:167-93
    DOI: 10.1257/mac.20160419
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    Cited by:

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    2. Hairault, Jean-Olivier & Zhutova, Anastasia, 2018. "The cyclicality of labor-market flows: A multiple-shock approach," European Economic Review, Elsevier, vol. 103(C), pages 150-172.
    3. Henrique S. Basso & Omar Rachedi, 2021. "The Young, the Old, and the Government: Demographics and Fiscal Multipliers," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 110-141, October.
    4. Domenico Ferraro & Giuseppe Fiori, 2023. "Nonlinear Employment Effects of Tax Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1001-1042, August.
    5. Domenico Ferraro & Giuseppe Fiori, 2018. "The Scarring Effect of Asymmetric Business Cycles," 2018 Meeting Papers 283, Society for Economic Dynamics.
    6. Joseph Kopecky, 2021. "The Age for Austerity? Population Age Structure and Fiscal Multipliers," Trinity Economics Papers tep1621, Trinity College Dublin, Department of Economics.
    7. Kopecky, Joseph, 2022. "The age for austerity? Population age structure and fiscal consolidation multipliers," Journal of Macroeconomics, Elsevier, vol. 73(C).
    8. Laure Simon, 2023. "Fiscal Stimulus and Skill Accumulation over the Life Cycle," Staff Working Papers 23-9, Bank of Canada.
    9. Bessho, Shun-ichiro, 2021. "Local fiscal multipliers and population aging in Japan," Japan and the World Economy, Elsevier, vol. 60(C).

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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