Labor Market Effects of Tax Changes in Times of High and Low Unemployment: Working Paper 2020-05
No 56522, Working Papers from Congressional Budget Office
This paper examines how the effects of legislated tax changes on labor market outcomes vary with the amount of slack in the economy, as measured by the rate of unemployment. I find that effects on hours worked, employment, and the unemployment rate become smaller in times of higher unemployment. I then develop a theoretical model in which changes in taxes on labor income directly affect the demand for labor by changing the costs that firms incur for employing workers. In the model, tax changes have smaller effects in times of higher unemployment because overall employee
JEL-codes: E20 E60 H20 (search for similar items in EconPapers)
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