Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129992
Authors: 
Jiang, Wei
Year of Publication: 
2014
Series/Report no.: 
School of Economics Discussion Papers 1414
Abstract: 
Using a Mortensen-Pissarides search-and-matching framework, this paper investigates the importance of search frictions in determining the welfare and distributional effects of tax reforms that re-allocate the tax burden from capital to labour income. Calibrating the model to the UK economy, we find that the tax reforms are Pareto improving but increase inequality in the long run, despite welfare losses for at least one segment of the population in the short run. The results are robust to the variations in the relative bargaining power of workers and different specifications of unemployment benefit. But the welfare gains are higher for all agents if the relative bargaining power of workers is reduced or we assume that unemployment benefit depends on past wages.
Subjects: 
search frictions
agent heterogeneity
unemployment benefits
tax reforms
JEL: 
E21
E24
E62
Document Type: 
Working Paper

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