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Selective Reductions in Labour Taxation: Labour Market Adjustments and Macroeconomic Performance

Anna Batyra () and Henri Sneessens ()

No 2007001, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: Significant differences in unemployment in Europe have been observed across skill groups, with the least skilled suffering the highest and most persistent unemployment rates. To identify policies alleviating this problem, we study the impact of reductions in employer social security contributions. We construct a general equilibrium model with three types of workers and firms, matching frictions, wage bargaining and a rigid minimum wage. We find evidence in favour of narrow tax cuts targeted at the minimum wage, but we argue that it is most important to account for the effects of such reductions on both job creation and job destruction. The failure to do so may explain the gap between macro- and microeconometric evaluations of such policies in France and Belgium. Policy impact on welfare and inefficiencies induced by job competition, ladder effects and on-th-job search are quantified and discussed.

Keywords: Minimum Wage; Job Creation; Job Destruction; Job Competition; Search Unemployment; Taxation; Computable General Equilibrium Models (search for similar items in EconPapers)
JEL-codes: C68 E24 J64 (search for similar items in EconPapers)
Pages: 39
Date: 2007-02-01
New Economics Papers: this item is included in nep-lab, nep-mac and nep-pbe
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Related works:
Journal Article: Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance (2010) Downloads
Working Paper: Selective Reductions in Labor Taxation Labour Market Adjustments and Macroeconomic Performance (2010) Downloads
Working Paper: Selective Reductions in Labor Taxation: Labor Market Adjustments and Macroeconomic Performance (2010) Downloads
Working Paper: Selective Reductions in Labor Taxation, Labour Market Adjustments and Macroeconomic Performance (2010) Downloads
Working Paper: Selective Reductions in Labour Taxation: Labour Market Adjustments and Macroeconomic Performance (2006) Downloads
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