wage effects of non wage labour costs we study wage effects of two important elements of non wage labour costs firing costs and payroll taxes we exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than 30 and over 45 years who got a permanent job a matching model with heterogeneous workers predicts positive wage effects of reducing firing costs but ambiguous wage effects of reducing payroll taxes for both new entrant and incumbent workers difference in differences estimates and simulation of the model show positive wage effects for both new entrant and incumbent workers the reduction in firing costs accounts for up to half of the overall wage increase for new entrants but only 10 for incumbents

subjective discounting in an exchange economy this paper describes the equilibrium of a discrete time exchange economy in which consumers with arbitrary subjective discount factors and homothetic period utility functions follow linear markov consumption and portfolio strategies explicit expressions are given for state prices and consumption wealth ratios we provide an analytically convenient continuous time approximation and show how subjective rates of time preference affect risk free rates but not instantaneous risk return trade offs hyperbolic discount factors can be a source of return volatility but they cannot be used to address asset pricing puzzles related to high frequency sharpe ratios

the impact of minimum wages on employment in a low income country a quasi natural experiment in indonesia the extensive literature on the employment impact of minimum wages has focused heavily on industrialized nations and very little on the developing world despite the importance of minimum wages in many low income countries one such country indo nesia was the setting for an unusual quasi natural experiment not only did minimum wages in indonesia increase sharply between 1990 and 1996 but the resultant increment in average wages varied markedly across different areas in greater jakarta the authors use household level labor market data to determine the extent of compliance with the legislation then estimate the employment impact in the clothing textiles footwear and leather industries based on a census of all large and medium sized establishments the evidence suggests that there was no negative employment impact for large establish ments either foreign or domestic but that workers in smaller domestic establishments may have suffered job losses as a result of minimum wage increases

the labor market effects of rising health insurance premiums we estimate the effect of rising health insurance premiums on wages employment and the distribution of part time and full time work using variation in medical malpractice payments driven by the recent medical malpractice crisis we estimate that a 10 increase in health insurance premiums reduces the aggregate probability of being employed by 1 2 percentage points reduces hours worked by 2 4 and increases the likelihood that a worker is employed only part time by 1 9 percentage points for workers covered by employer provided health insurance this increase in premiums results in an offsetting decrease in wages of 2 3

labor income responds differently to income tax and payroll tax reforms we estimate the responses of gross labor income with respect to marginal and average net of tax rates in france over the period 2003 2006 we exploit a series of reforms to the income tax and payroll tax schedules affecting individuals who earn less than twice the minimum wage our estimate for the elasticity of gross labor income with respect to the marginal net of income tax rate is around 0 2 while we find no response to the marginal net of payroll tax rate the elasticity with respect to the average net of tax rate is not significant for the income tax schedule while it is close to 1 for the payroll tax schedule a plausible explanation is the existence of significant labor supply responses to the income tax schedule combined with sticky posted wages i e the gross labor income minus payroll taxes divided by hours worked finally the effect of the net of income tax rate seems to be driven by participation decisions in particular those of married women

taxation and the structure of labor markets the case of corporatism we propose an explanation for the wide variation in rates of taxation across developed economies based on differences in labor market institutions in corporatist economies which feature centralized labor markets taxes on labor input will be less distortionary than when labor supply is determined individually since the level of labor supply is set by a small group of decision makers these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive labor tax burdens are indeed higher in more corporatist nations while nonlabor taxes are actually lower there is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies

the employment effects of low wage subsidies abstract low wage subsidies are often proposed as a solution to the unemployment problem among the low skilled but the empirical evidence on their effects is still scarce this paper examines the employment effects of a finnish payroll tax subsidy scheme which is targeted at the employers of older full time low wage workers the system s clear eligibility criteria open up an opportunity for a reliable estimation of the causal impacts of the subsidy scheme our results indicate that the subsidy system had no effect on the employment rate or wages of the eligible groups but it increased slightly working hours among those already at work

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

the effects of the unemployment insurance payroll tax on wages employment claims and denials abstract following a 13 year period when all employers in washington paid the same unemployment insurance ui tax rate washington was forced to adopt an experience rated tax system in 1985 we use this natural experiment to explore both tax incidence and the effects of experience rating we find that industry average tax rates are largely passed on to workers through lower earnings however our estimates imply that a firm can shift much less of the difference between its tax rate and the industry average rate our results also indicate that experience rating reduces turnover and ui claims and increases claim denials

the incidence of income tax on wages and labour supply in the simple framework of a static model for equilibrium wages and labour supplies we show that the incidence of income tax on equilibrium wages can be measured independently from the individual

equilibrium search unemployment endogenous participation and labor market flows the sustainability of welfare states requires high employment and high participation to raise the tax base to analyze labor supply in a world with market frictions we propose and solve a macro model of the labor market with unemployment and labor force participation as endogenous and distinct states in our world workers decisions of participating are determined by an entry decision and an exit decision a calibration of the model improves the usual representations of labor markets since it quantitatively accounts for the observed flows between employment and nonparticipation the paper investigates also the effect of payroll taxes and unemployment benefits on participation decisions taxes reduce entries and increase exits whereas unemployment benefits at a given job finding rate raise entries and have ambiguous effects on exits jel j2 j6

taxes and growth in a financially underdeveloped country evidence from the chilean investment boom this paper argues that taxation of retained profits is particularly distortionary in an economy with good growth prospects and poorly developed financial markets because it primarily reduces the investment of financially constrained firms investment that has marginal product greater than the after tax market real interest rate contrarily taxes on distributed profits or capital gains primarily reduce the investment of financially unconstrained firms chile experienced a banking crisis over the period from 1982 to 1986 and in 1984 reduced its tax rate on retained profits from 50 percent to 10 percent we show that consistent with our theory there was a large increase in aggregate investment after the reform which was entirely funded by an increase in retained profits further we show that investment grew by more in industries that depend more on external financing according to the rajan and zingales 1998 measure finally we present some weak evidence from comparisons of investment rates across firms for several different measures of their likelihood of being financially constrained

switching from payroll taxes to corporate income taxes firms employment and wages after the 2012 colombian tax reform the 2012 colombian tax reform reduced payroll taxes and employer contributions to health insurance by 13 5 percent while also increasing corporate income taxes and leaving untouched the benefits to workers financed through these taxes shifting taxation from formal employment to other business activities is a policy recipe under heated discussion in latin america the reform offers an ideal laboratory for studying empirically the potential distortions against formal employment associated with payroll taxes in contrast to other taxes on firms we analyze the impact of the reform on employment and wages using monthly firm level data on all formal employment in nonpublic firms in the country and a difference in differences approach that takes advantage of the fact that a few sectors were exempt from the 2012 tax reform we find a positive average effect of 4 3 percent on employment and 2 7 percent on average firm wages for the average firm the employment effect is found only for micro and small firms whereas the bulk of the employment is concentrated in medium and large firms which show no significant effect according to these estimates about 145 000 new jobs were created between january and may of 2015 by virtue of the reform these results are generally supportive of efforts to reduce payroll taxes though our findings on employment are less robust than those on wages and large firms do not seem to have benefitted the apparent lack of effect for medium and large employers is also a source of concern we speculate that it may be due to these firms being more sensitive to the increase in corporate taxation that financed the reduction in payroll taxes but lack of access to the relevant data prevents us from offering solid evidence regarding this hypothesis

the effect of social security on labor supply a cohort analysis of the notch generation this article uses aggregate birth year calendar year level data derived from the current population survey cps to estimate the effect of social security wealth on the labor supply of older men in the 1970s and 1980s the analysis focuses on measuring the impact of the 1977 amendments to the social security act which created a substantial unanticipated reduction in social security wealth for individuals born after 1916 this differential in benefits has become known as the benefit notch results indicate that labor supply continued to decline for the notch babies who received lower social security benefits than earlier cohorts

latin america s social policy challenge education social insurance redistribution abstract long regarded as a region beset by macroeconomic instability high inflation and excessive poverty and inequality latin america has undergone a major transformation over the last 20 years the region has seen improved macroeconomic management and substantial and sustained reductions in poverty and inequality in this paper we argue that social policy including human capital and education social insurance and redistribution need special attention if achievements of the last two decades are to be sustained and amplified starting in the mid 1990s many governments in the region introduced a variety of programs including noncontributory pensions and health insurance and cash transfers targeted to the poor social spending in latin america increased sharply these policies have been widely praised and we believe they have resulted in substantial improvements in the lives of the poor in the region however a more nuanced view shows some worrisome trends moving forward we believe it is nec

do place based tax incentives create jobs abstract in this paper we evaluate the effectiveness of place based payroll taxes in stimulating local employment by exploiting a unique policy setting in norway where a system of geographically differentiated payroll taxes was suddenly abolished due to an eu regulation the reform was enforced independently of the regional labor market developments creating arguably exogenous variation in the payroll tax rates that firms in different local labor markets faced over time we find evidence of partial shifting of payroll tax increases on to worker wages as well as a significant decline in local employment these findings suggest that in settings with some degrees of wage rigidity place based payroll tax incentives can be effective in stimulating local employment

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

the gender and intergenerational consequences of the demographic dividend an assessment of the micro and macrolinkages between the demographic transition and economic development the demographic transition changes the age composition of a population potentially affecting resource allocation at the household level and exerting general equilibrium effects at the aggregate level if age profiles of income consumption and savings were stable and estimable for the entire population they might imply how the demographic transition will affect national savings rates but there is little agreement on the impact of age composition these age profiles differ by gender and are affected by human capital investments whereas an existing micro simulation are estimated from samples of wage earners that are not distinguished by sex or schooling and make no effort to model family labor supply behavior or physical and human capital accumulation considering these shortcomings of assessments of the demographic dividend a case study based on household surveys and long run social experiments may be more informative matlab bangladesh extended a family planning and maternal and child health program to half the villages in the district in 1977 and recorded fertility in the program villages was 15 16 percent lower than in the control villages for two decades households in the program villages realized health and productivity gains that were concentrated among women survival and schooling increased among children and after 19 years household physical assets were 25 percent greater per adult than in the control villages these large gains in the wake of the program induced demographic transition suggest reasons for designing new labor market and microcredit policies to help women during the demographic transition invest in productive skills shift their time more efficiently from child care to home production self employment and wage labor and invest more in the human capital of their children

employment effects of payroll taxes an empirical test for germany this study tests to what degree the incidence of payroll taxes in germany is on employment and whether in consequence payroll taxes in particular social insurance contributions are the culprit behind the growing unemployment problem using industry level data for 18 years 1977 1994 a system of five dynamic factor demand equations is estimated various simulations indicate that the employment effects of payroll taxes are minimal

payroll taxes and wage inflation the swedish experiences payroll taxes levied on employers have become an increasingly important part of the swedish tax system these taxes including various collective fees agreed on in central wage negotiations amounted to about 6 of the wage bill of private business in 1950 but had reached 40 in the late 1970s payroll tax increases have been quite dramatic during the last decade with tax rates climbing from 14 to 40 attempts to estimate the extent to which payroll tax increases have been directly shifted back onto labor as lower wages are reported in this paper the basic message of the empirical analysis is that payroll tax increases have produced some backward shifting on wages although the shifting appears to be far from complete a onepercent statutory wage cost increase is associated with an actual wage cost increase of about one half of a percent

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

assessing the effect of payroll taxes on formal employment the case of the 2012 tax reform in colombia in 2013 colombia implemented a tax reform that reduced payroll taxes by a total of 13 5 percentage points of wages this paper evaluates the effects of this component of the 2012 colombian tax reform on firms formal employment and average wages we construct a panel of firms based on their employees administrative records to account for the endogeneity of the treatment we use an instrumental variables technique that exploits the exogenous variation from the decisions of firms that are similar to each other in several dimensions but belong to different economic sectors based on our preferred specification we estimate a positive and significant increase in formal employment as a result of the implementation of the reform of approximately 213 000 jobs in existing pre reform firms in the long run these effects will increase to more than 600 000 jobs the effect of the reform on the average wages paid by firms was also found to be positive for some sizes of firms but the overall effect in the short run is rather small

the incidence of payroll taxation evidence from chile i provide new evidence on the incidence of payroll taxation by examining the experience of chile before and after the privatization of its social security system this policy change led to a sharp exogenous reduction in the payroll tax burden on chilean firms on average payroll tax rates fell by 25 over 6 years using data from a census of manufacturing firms i estimate that the incidence of payroll taxation is fully on wages with no effect on employment this finding is robust to a variety of empirical approaches to the problem of measurement error in firm level measures of taxes worker

efficiency of fiscal measures in preventing out migration from north finland rutherford t f and torma h efficiency of fiscal measures in preventing out migration from north finland regional studies this paper introduces a computable general equilibrium cge model for the finnish regional economy regfin this multi sector and interregional model characterizes economic activity in the regions of lappi pohjois pohjanmaa kainuu keski pohjanmaa and the rest of finland the macroeconomic effects of a regional policy applied to north finland are considered to be similar to tax reforms that have been implemented in norway tax incentives affect individual choices regarding both migration and employment also studied is a value added tax reform where labour costs are exempted from the tax base the simulations seem to indicate that the regional differentiation of the employers social security contributions and the value added tax reform could be effective tools of regional policy rutherford t f et torma h l efficacite des mesures fiscales destinees a empecher l exode de la

monetary policy in the open economy revisited the case for exchange rate flexibility restored abstract this paper revisits the sticky price pricing to market model of devereux and engel devereux m b engel c 2003 monetary policy in the open economy revisited price setting and exchange rate flexibility review of economic studies 70 4 765 783 in which fixed exchange rates are optimal even in the face of country specific nonmonetary shocks we show that this result hinges critically on the devereux engel model s prediction that international consumption levels are perfectly synchronized under flexible prices realistic modifications of the model that produce nonsynchronous consumption movements such as the presence of nontraded goods upset the fixed exchange rate prescription even in the absence of an expenditure switching role of exchange rate changes

earnings determination and taxes evidence from a cohort based payroll tax reform in greece author s saez emmanuel matsaganis manos tsakloglou panos abstract this paper analyzes the response of earnings to payroll tax rates using a cohort based reform in greece all individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers using full population administrative social security data and a regression discontinuity design we estimate the long term incidence and effects of marginal payroll tax rates on earnings standard theory predicts that in the long run new regime workers should bear the entire burden of the payroll tax increase relative to old regime workers in contrast we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes we do not find any evidence of labor supply responses around the discontinuity suggesting low efficiency costs of payroll taxes the non standard incidence results are the same across firms of different sizes tax incidence however is standard for older workers in the new regime as they bear both the employee and employer tax those results combined with a direct small survey of employers can be explained by social norms regarding seniority based pay which create a growing wedge between pay and productivity as workers age

35 years of reforms a panel analysis of the incidence of and employee and employer responses to social security contributions in the uk we exploit variation in national insurance contributions nics the uk s system of social security contributions and a large panel dataset to examine the effects of 35 years of employee and employer nics reforms on labour cost gross earnings plus employer nics hours of work and labour cost per hour both immediately 0 6 months after reforms are implemented and in the slightly longer term 12 18 months we consider assumptions under which the estimated coefficients on net of marginal and net of average tax rates in a panel regression can be interpreted as behavioural elasticities or as reflecting incidence we find a compensated elasticity of taxable earnings with respect to the marginal rate of employee nics of about 0 2 0 3 operating largely through hours of work while that with respect to the marginal rate of employer nics is not statistically significantly different from zero we also find that labour cost falls by a much larger amount when the average rate of employer nics is reduced than when the average rate of employee nics is reduced which is consistent with the economic incidence of nics being strongly affected by its formal legal incidence estimates from the hours and hourly labour cost regressions provide further support to this interpretation of the findings and also suggest the presence of substantial income effects though also after 1999 a puzzling effect of average employer nics rates on hours of work each of these results remains true after 12 18 months if anything coefficients on lagged changes in nics rates strengthen these findings implying that any shifting of employer nics changes to the individual employees concerned and vice versa for employee nics does not begin over this time horizon these results are similar to those found by lehmann et al 2013 for france but represent an extension of that work by considering hours as well as labour cost responses and second year as well as immediate effects

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

efficiency of competitive equilibria in economies with time dependent preferences this paper focuses on welfare properties of equilibria in exchange economies with time dependent preferences we reintroduce the notion of time consistent overall pareto efficiency proposed by herings and rohde 2006 and show that whenever all agents in the economy are sophisticated any equilibrium allocation is efficient in this sense therefore we present a version of the first fundamental welfare theorem for this class of economies

do payroll tax breaks stimulate formality evidence from colombia s reform alternative work arrangements have grown rapidly around the world in latin america these alternative work arrangements have long been part of the labor market and have continued to grow the informal sector grew rapidly in latin america over the past few decades comprising up to half of the working population in many countries some attribute the growth in alternative work arrangements and informality to regulations and taxes while others argue that it is precisely the lack of enforcement of regulations that allows unprotected employment arrangements to flourish we examine whether reducing taxes associated with employment stimulates formal sector employment we exploit the fact that the tax reform introduced in colombia in 2012 affected only certain types of workers and not others in particular workers earning less than ten times the minimum wage and self employed workers with more than two employees experienced a reduction of payroll taxes of 13 5 percent between 2013 and 2014 we use the colombian household surveys social security records and the monthly manufacturing sample to conduct difference in differences analyses of the reform we find evidence of increased formal employment for the affected groups after the reform using all three data sets we find that the probability of formal employment and the likelihood of transitioning into registered employment increased for the affected groups after the reform we also find that the level and share of permanent employment relative to temporary employment grew after the reform for those earnings less than ten times the minimum wage the results are greatest for those in smaller firms and for those earnings close to the minimum wage

labor market effects of payroll taxes in developing countries evidence from colombia abstract we use a panel of manufacturing plants from colombia to analyze how the rise in payroll tax rates over the 1980s and 1990s affected the labor market our estimates indicate that formal wages fall by between 1 4 and 2 3 as a result of a 10 rise in payroll taxes this less than full shifting is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities in colombia because the costs of taxation are only partly shifted from employers to employees employment also falls our results indicate that a 10 increase in payroll taxes lowered formal employment by between 4 and 5 in addition we find some evidence of less shifting and larger disemployment effects for production than for nonproduction workers these results suggest that policies aimed at boosting the relative demand of less skilled workers by reducing social security taxes may be effective in latin american countries where minimum wages bind and benefits are often not directly lin

ramsey meets laibson in the neoclassical growth model the neoclassical growth model is modified to include a variable rate of time preference with no commitment ability and log utility the equilibrium features a constant effective rate of time preference and is observationally equivalent to the standard model the extended framework yields testable linkages between the extent of commitment ability and the rates of saving and growth the model also has welfare implications including the optimal design of institutions that facilitate household commitments steady state results are obtained for general concave utility functions and some properties of the transitional dynamics are characterized for isoelastic utility

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

a structural var approach on labour taxation policies this paper presents a structural var analysis on the employment and output effects of labour tax policies in six european countries for the period 1974 1997 by considering impulse response functions it turns out that on average a shock to the total personal income tax revenues is positively correlated to employment whereas there is mixed evidence on the output effect moreover the quantitative impact of these effects especially those related to the output appears to be quite small however by introducing explicitly four labour tax parameters namely the marginal and average tax rates for the personal income tax and the payroll tax it turns out that these effects are not negligible after all for some countries it is possible to conceive labour taxes as policy instruments favouring more employment and a better economic performance however the empirical support on the sign of the output and employment effects is mixed suggesting that the same domestic fiscal policy does not produce the same im

pension reform and gender gaps in latin america what are the policy options abstract several latin american countries have implemented structural reforms in their social security pension systems these reforms have modified the traditional public pay as you go defined benefit payg db schemes introducing multipillar systems where fully funded defined contribution ff dc schemes play an important role gender gaps in coverage and benefits under pagy db and ff dc schemes have been one of the policy issues missing in most of the reforms in part because it has been certainly underresearched in the literature this paper studies the sources of pension gender gaps and provides the pros and cons of a set of policy options that may contribute to overcoming the gaps found in both schemes these policies are divided on the one hand into specific policies that directly affect the determination of pension benefits by modifying formula design or eligibility conditions and on the other hand policies that indirectly affect the level of benefits and the likelihood of being entitled to them by changing incentives in labor market conditions