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Micro and Macro Elasticities in a Life Cycle Model With Taxes

  • Richard Rogerson
  • Johanna Wallenius

We build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work. We find that changes in taxes have large aggregate effects on hours of work. Moreover, we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers. In our model, micro and macro elasticities are effectively unrelated. Our model is also consistent with other cross-country patterns.

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File URL: http://www.nber.org/papers/w13017.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13017.

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Date of creation: Apr 2007
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Publication status: published as Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
Handle: RePEc:nbr:nberwo:13017
Note: EFG LS PE
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