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Bargaining Frictions, Labor Income Taxation, and Economic Performance

  • Stéphane Auray

    ()

    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Samuel Danthine

    ()

    (Universite du Quebec a Montreal, Universidad de Malaga and CIRPEE)

This paper is an attempt to explain differences in economic performance between a subset of OECD countries. We classify countries in terms of their degree of rigidity in the labor market, and use a matching model with labor/leisure choice, bargaining frictions, and labor income taxation to capture these rigidity differences. Added flexibility improves economic performance in different ways depending on whether income taxation is high or low. Feeding income taxation rates estimated from the countries at hand, we find that the model is able to replicate the observed rigidity levels. The model is also shown to reproduce well cross-country differences in non-employment population ratios and the share of part-time jobs.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0920.pdf
File Function: First version, 2009
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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 09-20.

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Length: 44 pages
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:shr:wpaper:09-20
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Phone: (819) 821-7233
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  13. Johannes F. Schmieder & Till von Wachter, 2010. "Does Wage Persistence Matter for Employment Fluctuations? Evidence from Displaced Workers," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 1-21, July.
  14. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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  16. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
  17. Ljungqvist, Lars & Sargent, Thomas J, 2007. "Do Taxes Explain European Employment? Indivisible Labour, Human Capital, Lotteries and Savings," CEPR Discussion Papers 6196, C.E.P.R. Discussion Papers.
  18. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA).
  19. Hu, Yongjian & Tijdens, Kea, 2003. "Choices for part-time jobs and the impacts on the wage differentials. A comparative study for Great Britain and the Netherlands," IRISS Working Paper Series 2003-05, IRISS at CEPS/INSTEAD.
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