Abstract:Selective Reductions in Labor Taxation: Labor Market Adjustments and Macroeconomic Performance *We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and nontargeted tax cuts, both with or without over-education effects. Introdu… Show more
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