TY - JOUR
T1 - Labor market search and the dynamic effects of taxes and subsidies
AU - Shi, Shouyong
AU - Wen, Quan
N1 - Funding Information:
Comments on an earlier version by a referee and an associate editor have led to significant improvements on this paper. We have also received valuable comments from Mark Bils, Toni Braun, Dale Mortensen and the participants of the NBER conference (at Minnesota, 1994) on the aggregate labor market, the Society of Economic Dynamics and Control meeting (1994) and the Canadian Economic Association meeting (1994). Both authors gratefully acknowledge the Social Sciences and Humanities Research Council of Canada for financial support. All errors are ours alone.
PY - 1999/4
Y1 - 1999/4
N2 - This paper integrates the search model of unemployment into an intertemporal framework and examines the dynamic effects of a labor income tax, a capital income tax, an unemployment subsidy, a vacancy subsidy, and an investment tax credit. We also compute the marginal deadweight losses associated with these policies. The presence of unemployment reduces the relative welfare cost of capital income taxation to labor income taxation. With realistic parameter values, labor income taxation can even be more costly than capital income taxation. A vacancy subsidy is efficient, self-financed and shares many features with an investment tax credit. An unemployment subsidy is very inefficient. Alternative matching and wage determination schemes are analyzed.
AB - This paper integrates the search model of unemployment into an intertemporal framework and examines the dynamic effects of a labor income tax, a capital income tax, an unemployment subsidy, a vacancy subsidy, and an investment tax credit. We also compute the marginal deadweight losses associated with these policies. The presence of unemployment reduces the relative welfare cost of capital income taxation to labor income taxation. With realistic parameter values, labor income taxation can even be more costly than capital income taxation. A vacancy subsidy is efficient, self-financed and shares many features with an investment tax credit. An unemployment subsidy is very inefficient. Alternative matching and wage determination schemes are analyzed.
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U2 - 10.1016/S0304-3932(98)00064-6
DO - 10.1016/S0304-3932(98)00064-6
M3 - Article
AN - SCOPUS:0001331202
SN - 0304-3932
VL - 43
SP - 457
EP - 495
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 2
ER -
