Heterogeneity, Transfer Progressivity and Business Cycles

Youngsoo Jang (), Takeki Sunakawa and Minchul Yum

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Abstract: This paper studies how transfer progressivity influences aggregate fluctuations when interacted with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how transfer progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that the model delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. Counterfactual exercises indicate that redistributive policies have very different implications for business cycle fluctuations, depending on whether tax progressivity or transfer progressivity is used. Finally, we provide empirical evidence on the heterogeneity of employment responses across the wage distribution, which supports the key mechanism of our model.

Keywords: Progressivity; government transfers; extensive margin labor supply; business cycles; redistributive policies (search for similar items in EconPapers)
JEL-codes: E21 E24 E32 H31 H53 (search for similar items in EconPapers)
Pages: 63
Date: 2020-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Heterogeneity, Transfer Progressivity, and Business Cycles (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_085v2

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