Title

Equilibrium Search and Tax Credit Reform

Author(s)

Andrew Shephard Andrew Shephard (Princeton University)

Abstract

An empirical equilibrium job search model with wage posting is developed to analyze the labor market impact of UK tax reforms. The model allows for a rich characterization of the labor market, with hours responses, accurate representations of the tax and transfer system, and both worker and firm heterogeneity. The model is estimated with pre-reform longitudinal survey data using a semi-parametric estimation technique, and the impact of actual tax reform policies is simulated. The model predicts that the British Working Families? Tax Credit and contemporaneous reforms increased employment, with equilibrium effects found to play a relatively minor role.

Creation Date

2011-09

Section URL ID

CEPS

Paper Number

223

URL

https://gceps.princeton.edu/wp-content/uploads/2017/01/223shephard.pdf

File Function

Jel

H290, J080, J300, J200

Keyword(s)

Labour market equilibrium, job search, wage dispersion, unemployment, monopsony, incidence, tax credits, United Kingdom, Great Britain

Suppress

false

Series

3