The marginal propensity to hire

Davide Melcangi

No 875, Staff Reports from Federal Reserve Bank of New York

Abstract: When financial constraints bind, firms adjust employment in response to cash flow shocks. A 2010 revaluation of business rates, a United Kingdom tax levied on business-occupied properties, implied that similar firms, occupying similar properties in narrow geographical locations, experienced different tax changes. I find that, on average, for every £1 of additional cash flow triggered by the tax change, 39 pence were spent on employment, with small and leveraged firms responding the most. A general equilibrium model with firm heterogeneity and financial frictions rationalizes these findings, and quantitatively determines the aggregate effects of a fiscal transfer to firms.

Keywords: financial frictions; employment; heterogeneous firms (search for similar items in EconPapers)
JEL-codes: E24 E44 E60 G32 (search for similar items in EconPapers)
Pages: 73
Date: 2018-12-01
New Economics Papers: this item is included in nep-mac
Note: Revised January 2026.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr875.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr875.html Summary (text/html)

Related works:
Working Paper: The Marginal Propensity to Hire (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:875

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().