Micro and Macro Elasticities in a Life Cycle Model With Taxes

Richard Rogerson () and Johanna Wallenius

No 13017, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E2 J2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
Date: 2007-04
Note: EFG LS PE
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