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Payroll Taxes, Social Insurance and Business Cycles

  • Michael C. Burda
  • Mark Weder

Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical fluctuations 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 model’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. herunterladen.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2010-042.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-042.

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Length: 41 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2010-042
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