Taxing Overtime or Subsidizing Employment
This paper compares the macroeconomic implications of overtime taxation and wage and employment subsidies in a dynamic general equilibrium model in which hours and bodies are imperfect substitutes due to team work and externality-based commuting costs. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase as taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view
Volume (Year): 9 (2009)
Issue (Month): 1 (October)
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