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Micro and macro elasticities in a life cycle model with taxes

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Listed author(s):
  • Rogerson, Richard
  • Wallenius, Johanna

Abstract

We build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work. We find that changes in taxes have large aggregate effects on hours of work. Moreover, we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers. In our model, micro and macro elasticities are effectively unrelated. Our model is also consistent with other cross-country patterns.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(08)00152-X
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 6 (November)
Pages: 2277-2292

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:6:p:2277-2292
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

Keywords: Labor supply Life cycle Taxes;

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Find related papers by JEL classification:
  • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
  • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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