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Taxes, transfers, and employment in an incomplete markets model

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  • Jorge Alonso-Ortiz
  • Richard Rogerson

Abstract

Tax and transfer programs are analyzed in the context of a model with idiosyncratic productivity shocks and incomplete markets. The effects are contrasted with those obtained in a stand-in household model featuring no idiosyncratic shocks and complete markets. The main finding is that the impact on hours remains very large, but the welfare consequences are very different. The analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment.

Suggested Citation

  • Jorge Alonso-Ortiz & Richard Rogerson, 2010. "Taxes, transfers, and employment in an incomplete markets model," FRB Atlanta CQER Working Paper 2010-07, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedacq:2010-07
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    References listed on IDEAS

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