Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128627
Authors: 
Chugh, Sanjay K.
Lechthaler, Wolfgang
Merkl, Christian
Year of Publication: 
2016
Series/Report no.: 
Kiel Working Paper 2030
Abstract: 
This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the tax-smoothing results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-modelconsistent wedges and inefficiencies in order to understand optimal tax volatility.
Subjects: 
labor market frictions
hiring costs
efficiency
optimal taxation
labor wedge
zero intertemporal distortions
JEL: 
E24
E32
E50
E62
E63
J20
Document Type: 
Working Paper

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