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Selective Reductions in Labor Taxation, Labour Market Adjustments and Macroeconomic Performance

  • Anna Batyra
  • Henri R. Sneessens

    ()

    (CREA, University of Luxembourg)

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 nontargeted 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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File URL: http://wwwfr.uni.lu/content/download/28778/339970/file/2010_01-Selective%20Reductions%20in%20Labor%20Taxation%20Labour%20Market%20Adjustments%20and%20Macroeconomic%20Performance.pdf
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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 10-01.

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Date of creation: 2010
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Handle: RePEc:luc:wpaper:10-01
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