Taxes and the Labor Market

Roberto Perotti, Tommas Monacelli and Antonella Trigari ()

No 8657, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate the effect of exogenous changes in taxes on the US unemployment rate and on several other labor market variables. Our estimates are based on a revised version of the Romer and Romer (2010) narrative record of exogenous tax innovations, with the additional benefit of distinguishing between capital income and labor income taxes. We first show that accounting for the difference between automatic and discretionary tax changes in the revised specification is crucial in order to obtain an unbiased measure of the tax multipliers. We then obtain the following main results. An increase in tax receipts of one percent of GDP has a sizeable positive impact on the unemployment rate, and a negative impact on hours worked, labor market tightness and job finding probability. The effect on GDP is also sizeable, but somewhat in the mid range of other values found in the literature, due to the fact that we account for the difference between discretionary and automatic changes in tax revenues. The effect on the unemployment rate of variations in business taxes is larger than that of personal income taxes. We suggest that the latter result poses interesting challenges for future research.

Keywords: Tax shocks; Tax multiplier; Taxation; Fiscal policy; Labour markets (search for similar items in EconPapers)
JEL-codes: E24 E62 H20 H60 (search for similar items in EconPapers)
Date: 2011-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP8657 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Chapter: Taxes and the Labor Market (2013)
Working Paper: Taxes and the Labor Market (2011)
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:cpr:ceprdp:8657

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8657

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().