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Labour Tax Reform, the Good Jobs and the Bad Jobs


  • Henrik Jacobsen Kleven
  • Peter Birch S¯rensen


We analyse recent proposals to shift the tax burden away from low-paid labour, assuming a dual labour market where the "good" high-paying jobs are rationed. A shift in the tax burden from low-paid to high-paid workers has an ambiguous effect on the "level" of aggregate employment while the "allocation" of aggregate employment is further distorted. Even if the tax reform raises total employment, economic efficiency may be reduced because labour is reallocated from high-productive to low-productive jobs. We also find that opportunities for on-the-job search have important implications for the policy effects. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .

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  • Henrik Jacobsen Kleven & Peter Birch S¯rensen, 2004. "Labour Tax Reform, the Good Jobs and the Bad Jobs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 45-64, March.
  • Handle: RePEc:bla:scandj:v:106:y:2004:i:1:p:45-64

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    References listed on IDEAS

    1. Yeon-Koo Che & Jozsef Sakovics, 2004. "Contractual Remedies to the Holdup Problem: A Dynamic Perspective," ESE Discussion Papers 100, Edinburgh School of Economics, University of Edinburgh.
    2. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, June.
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    Cited by:

    1. Jörg Lingens & Klaus Wälde, 2009. "Pareto-Improving Unemployment Policies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 220-245, June.
    2. Boeters, Stefan, 2011. "Optimal tax progressivity in unionised labour markets: What are the driving forces?," Economic Modelling, Elsevier, vol. 28(5), pages 2282-2295, September.
    3. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.
    4. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
    5. repec:zbw:ifwkwp:1309 is not listed on IDEAS

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