Payroll Taxes, Social Insurance and Business Cycles

Michael Burda and Mark Weder

No 7984, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search eff ort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the model?s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment.

Keywords: Business cycles; Consumption-tightness puzzle; Labor markets; Payroll taxes; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2010-09
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: PAYROLL TAXES, SOCIAL INSURANCE, AND BUSINESS CYCLES (2016)
Journal Article: Payroll Taxes, Social Insurance, and Business Cycles (2016)
Working Paper: Payroll Taxes, Social Insurance and Business Cycles (2010)
Working Paper: Payroll Taxes, Social Insurance and Business Cycles (2010)
Working Paper: Payroll Taxes, Social Insurance and Business Cycles (2010)
Working Paper: Payroll taxes, social insurance and business cycles (2010)
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