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Payroll Taxes, Social Insurance and Business Cycles

  • Michael C. Burda

    ()

    (Humboldt University Berlin)

  • Mark Weder

    ()

    (School of Economics, University of Adelaide)

Payroll taxes represent a major distortionary in uence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical uctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the modelÂ’s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2010-17.pdf
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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2010-17.

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Length: 41 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:adl:wpaper:2010-17
Contact details of provider: Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/

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