Earned Income Tax Credit in a Disaggregated Labor Market with Minimum Wage Contracts

Lars Haagen Pedersen and Peter Stephensen

No 199901, DREAM Working Paper Series from Danish Rational Economic Agents Model, DREAM

Abstract: An earned income tax credit is introduced in a dynamic CGE model with overlapping generations and imperfectly competitive labor market segments. The model is calibrated to a 10 percent sample of a register of all persons and workplaces in Denmark and scaled to the level of National Accounts. Each labor market segment is covered by a collective bargaining agreement, except one that is competitive. In all segments a distribution of workers with different productivity exists. A tax credit, which increases the net income of the poorest full-time employed workers in the economy by DKK 5000, reduces unemployment by 2.5 percentage points. Since the marginally employed have a productivity lower than the average worker, employment measured in productivity units increases only by approximately 1.5 percentage points. Women and younger generations tend to gain from the policy. The effect of the policy depends crucially on the initial level of unemployment because the productivity distributions are highly non-linear: if the initial level ofunemployment is halved to 5% so are the effects of unemployment and employment.

JEL-codes: D58 D91 H24 J51 (search for similar items in EconPapers)
Pages: 70 pages
Date: 1999-11
Note: A short version of this paper is published in Harrison, Hougaard Jensen, Pedersen og Rutherford (ed.): Using Dynamic General Equilibrium Models for Policy Analysis, North-Holland 2000
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.dreammodel.dk/pdf/W199903.pdf First version, 1999 (application/pdf)

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:dra:wpaper:199901

Access Statistics for this paper

More papers in DREAM Working Paper Series from Danish Rational Economic Agents Model, DREAM Amaliegade 44, DK - 1256 Copenhagen K. Contact information at EDIRC.
Bibliographic data for series maintained by Peter Stephensen ().