Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach

B.J. Heijdra, J.E. Ligthart

Research output: Working paperDiscussion paperOther research output

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Abstract

The paper studies simple strategies of labor tax reform in a search and matching model of the labor market featuring endogenous labor supply.Changing the composition of the tax wedge|that is, reducing a payroll tax and increasing a progressive wage tax such that the marginal tax wedge remains unaffected|increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations.A strategy of replacing employment taxes by payroll taxes increases employment and reduces the equilibrium unemployment rate, while the effect on public revenue is ambiguous.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages25
Volume2004-89
Publication statusPublished - 2004

Publication series

NameCentER Discussion Paper
Volume2004-89

Fingerprint

Search and matching
Labor tax
Tax reform
Equilibrium unemployment
Payroll tax
Public revenue
Tax
Wages
Unemployment rate
Tax wedge
Bargaining power
Endogenous labor supply
Workers
Search and matching model
Labour market

Keywords

  • labour market
  • taxation
  • unemployment
  • matching

Cite this

Heijdra, B. J., & Ligthart, J. E. (2004). Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach. (CentER Discussion Paper; Vol. 2004-89). Tilburg: Macroeconomics.
Heijdra, B.J. ; Ligthart, J.E. / Labor Tax Reform and Equilibrium Unemployment : A Search and Matching Approach. Tilburg : Macroeconomics, 2004. (CentER Discussion Paper).
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Heijdra, BJ & Ligthart, JE 2004 'Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach' CentER Discussion Paper, vol. 2004-89, Macroeconomics, Tilburg.

Labor Tax Reform and Equilibrium Unemployment : A Search and Matching Approach. / Heijdra, B.J.; Ligthart, J.E.

Tilburg : Macroeconomics, 2004. (CentER Discussion Paper; Vol. 2004-89).

Research output: Working paperDiscussion paperOther research output

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AB - The paper studies simple strategies of labor tax reform in a search and matching model of the labor market featuring endogenous labor supply.Changing the composition of the tax wedge|that is, reducing a payroll tax and increasing a progressive wage tax such that the marginal tax wedge remains unaffected|increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations.A strategy of replacing employment taxes by payroll taxes increases employment and reduces the equilibrium unemployment rate, while the effect on public revenue is ambiguous.

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KW - unemployment

KW - matching

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VL - 2004-89

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Heijdra BJ, Ligthart JE. Labor Tax Reform and Equilibrium Unemployment: A Search and Matching Approach. Tilburg: Macroeconomics. 2004. (CentER Discussion Paper).