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Employment and Growth Effects of Tax Reforms in a Growth-Matching Model

By Angela Birk and Jochen Michaelis

Abstract

This paper explores how revenue-neutral tax reforms impact employment and economic growth in models of exogenous and endogenous growth and search frictions on the labor market. We show that (i) a cut in the payroll tax financed by an increase in the wage tax lowers both equilibrium employment and the equilibrium growth rate, that (ii) a higher energy tax combined with a cut in wage taxes boosts employment but has an ambiguous effect on growth, and that (iii) a higher energy tax combined with a cut in payroll taxes enhances employment but mitigates economic growth.search unemployment, growth, tax reform, Labor and Human Capital, Public Economics, E6, H2, J6, O4,

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