Tax Policy and Labor Market Performance by Jonas Agell, Peter Birch Sørensen

By Jonas Agell, Peter Birch Sørensen

Excessive unemployment in lots of ecu OECD international locations has been attributed to components starting from inflexible wages and coffee task mobility to an interplay of excessive taxes and beneficiant social advantages that can discourage exertions strength participation and inspire the expansion of an underground economic climate. This CESifo quantity analyzes the impression of tax coverage and, extra normally, welfare country incentives, at the functionality of the hard work marketplace. The individuals, all top overseas economists, take either theoretical and empirical techniques; the booklet contains common overviews in addition to in-depth analyses of particular guidelines. a few chapters take a vast standpoint on taxation and exertions markets, contemplating such issues because the results of taxes in either the normal version of a aggressive hard work industry and a extra reasonable imperfect marketplace, the saw paintings differentials among Europe and the U.S., and the opportunity of revolutionary taxes and redistributive advantages to spice up employment. different chapters study the results of tax reforms, together with the Earned source of revenue Tax credits, and the wage-increasing results of innovative source of revenue taxes in a hugely unionized hard work industry. ultimately, the participants research the results of employment safeguard and tax consequences at the development of the underground economic system. The insights provided in those experiences may be helpful to the coverage analyst in addition to to the educational theorist. members: Jonas Agell, Dan Anderberg, Søren Arnberg, A. Lans Bovenberg, Nada Eissa, Anders Holm, Hilary Hoynes, Henrik Jacobsen Kleven, Ann-Sofie Kolm, Birthe Larsen, Stephen Nickell, Peter Birch Sørensen, Frederick van der Ploeg, Claus Thustrup Kreiner, Torben Tranæs

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Firms hire labor until the marginal revenue À Á from the last worker equals the producer wage, namely, Py 1 À 1e AF 0 ðL d Þ ¼ ð1 þ T l ÞW. , a < 0) acts like a payroll tax. Indeed, we investigate not only changes in explicit taxes on labor income but also exogenous changes in labor productivity. This enables us to explore the impact of implicit labor taxes that reduce the productivity of labor. To illustrate, in a small open economy, source-based taxes on capital act as implicit taxes on labor do by reducing the productivity of labor if capital is perfectly mobile internationally.

P r 24 The union sets utility in work as a markup on outside utility U . A more progressive tax system, which implies a lower coefficient of residual income progression 20 A. Lans Bovenberg S, moderates wages. Intuitively, a high marginal tax rate implies that higher wages accrue mainly to the government rather than to union members. Hence, from the union’s point of view, the payoff from higher wage costs (and the associated loss in employment) in terms of higher net incomes for working members is only low, so that the union moderates wages.

Ignoring open economy considerations, we define the consumer price as P c 1 1 þ T c , where T c denotes the consumer tax rate. , NL s ¼ L d where N denotes the fixed number of households), we can solve for employment, wage costs per unit of output, and the consumer wage: l ¼ À½ d =ð u þ  d ފ½ c t m þ  i t a þ  u ðt l À a þ t c ފ ð3Þ ¼ ½ d =ð u þ  d ފ½ c s þ  u ða À tފ; w þ t l À a ¼ ½ u ðt À aÞ À  c sÞ=ð u þ  d ފ; ð4Þ w À t a À p c ¼ ½ d ða À tÞ À  c sŠ=ð u þ  d Þ; ð5Þ where s ¼ t a À t m , t 1 t a þ t l þ t c , and the labor demand elasticity  d applies to the macroeconomic level.

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