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Selective Reductions in Labor Taxation Labour Market Adjustments and Macroeconomic Performance

  • 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)

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.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2010021.

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Date of creation: 31 Jan 2010
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Handle: RePEc:ctl:louvir:2010021
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