Micro and macro elasticities in a life cycle model with taxes

Richard Rogerson; Johanna Wallenius

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.

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Year of publication:	2007
Authors:	Rogerson, Richard Donald ; Wallenius, Johanna
Publisher:	Cambridge, Mass. : National Bureau of Economic Research
Subject:	Arbeitsangebot \| Labour supply \| Elastizität \| Elasticity \| Arbeitszeit \| Working time \| Steuerwirkung \| Tax effects \| Öffentliche Sozialleistungen \| Social security benefits \| Allgemeines Gleichgewicht \| General equilibrium \| USA \| United States \| Europa \| Europe