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Labour tax reform, the good jobs and the bad jobs

By Henrik Jacobsen Kleven and Peter Birch Sorenson


We analyse recent proposals to shift the tax burden away from low‐paid labour, assuming a dual labour market where the "good" high‐paying jobs are rationed. A shift in the tax burden from low‐paid to high‐paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is further distorted. Even if the tax reform raises total employment, economic efficiency may be reduced because labour is reallocated from high‐productive to low‐productive jobs. We also find that opportunities for on‐the‐job search have important implications for the policy effect

Topics: HD Industries. Land use. Labor
Publisher: Wiley
Year: 2004
DOI identifier: 10.1111/j.0347-0520.2004.t01-1-00347.x
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Provided by: LSE Research Online
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