Should we tax overtime, subsidize the wage or subsidize employment?

Victoria Osuna

No 09.03, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: This paper compares the macroeconomic implications of taxing overtime and using two kinds of subsidies, an employment and a wage subsidy, in a model where team work and commuting costs subject to congestion are key determinants of the choice of the workweek. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase than taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view, 12.7% of output versus 4.57% of output in the employment subsidy experiment.

Keywords: Overtime taxation; Subsidies; Workweek; Team Work; Commuting costs. (search for similar items in EconPapers)
JEL-codes: E60 H25 J08 J22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-02
New Economics Papers: this item is included in nep-dge and nep-lab
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http://www.upo.es/serv/bib/wps/econ0903.pdf First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pab:wpaper:09.03

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