EconPapers    
Economics at your fingertips  
 

Non-Linear Employment Effects of Tax Policy

Domenico Ferraro and Giuseppe Fiori

No 1333, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the non-linear propagation mechanism of tax policy in a heterogeneous agent equilibrium business cycle model with search frictions in the labor market and an extensive margin of employment adjustment. The model exhibits endogenous job destruction and endogenous hiring standards in the form of occasionally-binding zero-surplus constraints. After parameterizing the model using U.S. data, we find that the dynamic response of employment to a temporary change in the labor income tax is highly non-linear, displaying sizable asymmetries and state-dependence. Notably, the response to a tax rate cut is at least twice as large in a recession as in an expansion.

Keywords: Search frictions; Job destruction; Heterogeneity; Aggregation; Tax policy (search for similar items in EconPapers)
JEL-codes: E12 E24 E32 E62 (search for similar items in EconPapers)
Date: 2021-12-20
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac, nep-ore and nep-pub
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.federalreserve.gov/econres/ifdp/files/ifdp1333.pdf (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:fip:fedgif:1333

DOI: 10.17016/IFDP.2021.1333

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2023-01-27
Handle: RePEc:fip:fedgif:1333