Optimal ( Capital ) - Taxation and ( Female ) - Labor Force Participation – The Importance of Labor Market Flows ∗
نویسنده
چکیده
This paper asks how good actual US-fiscal policy was on average and over the cycle in the last 40 years compared to a Ramsey-optimal policy of a frictional labor market model. In our model labor taxes are intertemporally distortive, making the trade-off between capital and labor taxes interesting. Quantitatively, (optimal) taxation results hinge upon an estimate of the intratemporal elasticity of substitution of hours worked. We endogenize, controlling for gender, all transitions across labor market states, the ”Ins and Outs of Unemployment”, see Shimer (2007), to decompose this elasticity into the main labor market components. This decomposition shifts the focus away from a preference driven explanation of the elasticity to a broader concept that highlights technological and distributional aspects. We show that our model driven by a parsimonious shock structure can predict these elasticities and thereby all US-labor market flow data as documented in Shimer (2007) very well. We find that the distortion in the labor force participation decision is important and needs to be counteracted by an optimal positive capital tax of 23%. If we allow for gender based taxes, see Alesina and Ichinol (2007), optimal capital taxes are almost zero but the female-male labor tax-ratio is 40%. The cyclical path of actual labor taxes correlates fairly close with the predicted Ramsey-optimal path. JEL Classification System: E31,E32,E24,J64
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