Micro and macro elasticities in a life cycle model with taxes

Richard Rogerson, Johanna Wallenius

Research output: Contribution to journalArticlepeer-review

168 Scopus citations

Abstract

We build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work. We find that changes in taxes have large aggregate effects on hours of work. Moreover, we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers. In our model, micro and macro elasticities are effectively unrelated. Our model is also consistent with other cross-country patterns.

Original languageEnglish (US)
Pages (from-to)2277-2292
Number of pages16
JournalJournal of Economic Theory
Volume144
Issue number6
DOIs
StatePublished - Nov 2009
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Labor supply
  • Life cycle
  • Taxes

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