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Distortionary taxation, international business cycles and real wage: explaining some puzzling facts

  • Francois Langot


    (GAINS-TEPP (Université du Maine))

  • Coralia Quintero-Rojas


    (Department of Economics and Finance, Universidad de Guanajuato)

In this paper, we show that fluctuations in distortive taxes can account for most puzzling features of the U.S. economy. Namely, the observed real wage rigidity, the international correlation of investment and labor inputs, and the so-called quantity puzzle (according to which cross-country correlation of outputs is higher than the one of consumptions). This is done in a two-country search and matching model with fairly standard separable preferences, extended to include a tax/benefit system.

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Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC201002.

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Length: 30 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:gua:wpaper:ec201002
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