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Taxation and Unemployment in Models with Heterogeneous Workers

Author

Listed:
  • Marcus Hagedorn

    (University of Oslo)

  • Iourii Manovskii

    (University of Pennsylvania)

  • Sergiy Stetsenko

    (GM Financial)

Abstract

We introduce ex-ante heterogeneity between workers and two technology shocks, neutral and investment-specific, as the driving forces into the basic Mortensen-Pissarides search and matching model. The calibrated model is simultaneously consistent with a strong response of labor market variables to cyclical fluctuations in productivity and a weaker response to changes in taxes found in cross-country data. The model also matches the evidence that countries with higher tax rates have higher aggregate productivity, lower skill premia, and higher unemployment rates among both high- and low-skilled workers. The key mechanism that allows us to achieve these results is that aggregate and group-specific productivities are endogenous and respond to changes in tax policy. (Copyright: Elsevier)

Suggested Citation

  • Marcus Hagedorn & Iourii Manovskii & Sergiy Stetsenko, 2016. "Taxation and Unemployment in Models with Heterogeneous Workers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 161-189, January.
  • Handle: RePEc:red:issued:14-340
    DOI: 10.1016/j.red.2015.12.004
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    References listed on IDEAS

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    Cited by:

    1. Konstantinos Angelopoulos & Spyridon Lazarakis & Jim Malley, 2017. "Wealth Inequality and Externalities from Ex Ante Skill Heterogeneity," CESifo Working Paper Series 6572, CESifo.
    2. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2019. "Savings externalities and wealth inequality," Working Papers 2019-05, Business School - Economics, University of Glasgow.
    3. Cords, Dario & Prettner, Klaus, 2018. "Technological unemployment revisited: Automation in a search and matching framework," Hohenheim Discussion Papers in Business, Economics and Social Sciences 19-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    4. Konstantinos Angelopoulos & Spyridon Lazarakis & Jim Malley, 2019. "Savings externalities and wealth inequality," CESifo Working Paper Series 7619, CESifo.
    5. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2017. "Wealth inequality and externalities from ex ante skill heterogeneity," Working Papers 2017_07, Business School - Economics, University of Glasgow.
    6. Konstantinos Angelopoulos & Wei Jiang & James Malley, 2017. "Targeted fiscal policy to increase employment and wages of unskilled workers," Studies in Economics 1704, School of Economics, University of Kent.
    7. Masaya Yasuoka, 2021. "How should a government finance pension benefits?," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 138-152, March.

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    More about this item

    Keywords

    Search; Matching; Business cycles; Heterogeneity; Labor markets;
    All these keywords.

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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