Taxing Overtime or Subsidizing Employment

Victoria Osuna

The B.E. Journal of Macroeconomics, 2009, vol. 9, issue 1, 28

Abstract: This paper compares the macroeconomic implications of overtime taxation and wage and employment subsidies in a dynamic general equilibrium model in which hours and bodies are imperfect substitutes due to team work and externality-based commuting costs. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase as taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view

Keywords: workweek; team work; commuting costs; overtime tax; employment subsidy; wage subsidy (search for similar items in EconPapers)
Date: 2009
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DOI: 10.2202/1935-1690.1892

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