Getting low educated and older people into work: The role of fiscal policy

Freddy Heylen and Renaat van de Kerckhove

Journal of Policy Modeling, 2019, vol. 41, issue 4, 586-606

Abstract: Raising employment, in particular employment among older individuals and low educated individuals, stands high on the agenda of policy makers in many OECD countries. Increased sensitivity in recent years to rising inequality has made the challenge only larger. In this paper we evaluate alternative fiscal policy scenarios to face this challenge. We construct and use an overlapping generations model for an open economy where individuals differ not only by age, but also by innate ability and human capital. The model allows us to study effects on aggregate employment, per capita income and welfare, as well as effects for specific age and ability groups. We show that well-considered fiscal policy changes can significantly improve macroeconomic productive efficiency, without increasing intergenerational or intragenerational welfare inequality. Our results strongly prefer a reduction in the labor tax rate on older workers and on all low-wage earners, financed by an overall reduction in non-employment benefits. An alternative financing option is to raise the consumption tax rate. These results are to be seen as long-run effects for economies at potential output.

Keywords: Employment by age; Fiscal policy; Heterogeneous ability; Welfare inequality; Overlapping generations (OLG) (search for similar items in EconPapers)
JEL-codes: E62 H5 I28 J22 J24 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016189381930002X
Full text for ScienceDirect subscribers only

Related works:
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:eee:jpolmo:v:41:y:2019:i:4:p:586-606

DOI: 10.1016/j.jpolmod.2019.02.001

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().