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Selective Reductions in Labor Taxation Labour Market Adjustments and Macroeconomic Performance

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  • Anna BATYRA

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Henri SNEESSENS

    () (CREA, Université du Luxembourg, IRES, Université catholique de Louvain, and IZA, Bonn)

Abstract

We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and non-targeted tax cuts, both with or without over-education effects. Introducing over-education changes substantially the employment, productivity and welfare effects of a tax cut, although tax cuts targeted on the least skilled workers always have larger effects.

Suggested Citation

  • Anna BATYRA & Henri SNEESSENS, 2010. "Selective Reductions in Labor Taxation Labour Market Adjustments and Macroeconomic Performance," LIDAM Discussion Papers IRES 2010021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2010021
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    Cited by:

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    3. Raphael A Espinoza & Esther Perez Ruiz, 2014. "Labor Tax Cuts and Employment; A General Equilibrium Approach for France," IMF Working Papers 14/114, International Monetary Fund.
    4. Heylen, Freddy & Van de Kerckhove, Renaat, 2019. "Getting low educated and older people into work: The role of fiscal policy," Journal of Policy Modeling, Elsevier, vol. 41(4), pages 586-606.
    5. Raphael A Espinoza & Esther Perez Ruiz, 2016. "How Do Fiscal and Labor Policies in France Affect Inequality?," IMF Working Papers 16/41, International Monetary Fund.
    6. Ján Remeta & Sarah Perret & Martin Jareš & Bert Brys, 2015. "Moving Beyond the Flat Tax - Tax Policy Reform in the Slovak Republic," OECD Taxation Working Papers 22, OECD Publishing.
    7. Stankov, Petar & Vasilev, Aleksandar, 2019. "Business reform outcomes: Why so different?," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1109-1127.

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    More about this item

    Keywords

    Minimum Wage; Job Creation; Job Destruction; Job Competition; Search Unemployment; Taxation; Computable General Equilibrium Models;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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