Tax policy in search-and-matching model with heterogeneous agents

Jiang, W. (2013) Tax policy in search-and-matching model with heterogeneous agents. In: Royal Economic Society Annual Conference, London, UK, 3-5 Apr 2013,

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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 which re-allocate the tax burden from capital to labour income assuming agent heterogeneity in their economic roles. With a realistic calibration to the current UK economy, we find that the tax reforms will be Pareto improving but increase inequality in the long run, despite welfare losses for at least one segment of the population in the transition period. The results are robust to the variations in the relative bargaining power of workers and different specifications of unemployment benefits. But the welfare gains are higher for all agents by reducing workers' relative bargaining power or assuming unemployment benefits depending on past wages.

Item Type:Conference Proceedings
Glasgow Author(s) Enlighten ID:Jiang, Miss Wei
Authors: Jiang, W.
College/School:College of Social Sciences > Adam Smith Business School > Economics

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
512541Optimal taxation in heterogeneous agent dynamic general equilibrium models.James MalleyEconomic & Social Research Council (ESRC)ES/H021140/1BUS - ECONOMICS