2017
DOI: 10.1111/iere.12245
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Equilibrium Search and Tax Credit Reform

Abstract: An empirical equilibrium job search model with wage posting is developed to analyze the impact of U.K. 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 British Working Families' Tax Credit and contemporaneous reforms are predicted to increase employment, with equilibrium effects found to be relatively modest. The model is used to assess the impact of alternati… Show more

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Cited by 30 publications
(33 citation statements)
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“…While the direct effect is the result of the individual bargaining between the firm and the worker, the indirect effects are equilibrium effects and do not rely on any specific form of wage‐setting and could be the result of a wage‐posting model. For example, incorporating some of the above features, Shephard () used a wage‐posting search model with frictions (á la Burdett and Mortensen ()) to show that if firms set wages and if eligible workers respond the reform by increasing labor supply, firms may respond by lowering wage offers. In which case, the effective transfer to eligible families is reduced, while noneligible families may become worse off if they are competing within the same labor market.…”
Section: Analytical and Institutional Frameworkmentioning
confidence: 99%
See 1 more Smart Citation
“…While the direct effect is the result of the individual bargaining between the firm and the worker, the indirect effects are equilibrium effects and do not rely on any specific form of wage‐setting and could be the result of a wage‐posting model. For example, incorporating some of the above features, Shephard () used a wage‐posting search model with frictions (á la Burdett and Mortensen ()) to show that if firms set wages and if eligible workers respond the reform by increasing labor supply, firms may respond by lowering wage offers. In which case, the effective transfer to eligible families is reduced, while noneligible families may become worse off if they are competing within the same labor market.…”
Section: Analytical and Institutional Frameworkmentioning
confidence: 99%
“…In addition, the policy's labor supply impact has been shown to be different for men and women. While the policy resulted in a labor supply increase only for single mothers, with no overall effect on married mothers (but it may increase or decrease depending on partners' employment status), there was a small and negligible negative effect on the labor supply of fathers (for studies on labor supply effects on single parents; see Blundell et al (), Gregg and Harkness (), Brewer, Duncan, Shephard, and Suarez ( ), Francesconi and van der Klaauw (), Leigh (), Gregg, Harkness, and Smith (), Azmat (), Shephard ()). For studies on married couples, see Blundell et al (), Blundell (), Blundell and Hoynes (), Francesconi, Rainer, and van der Klaauw (), Shephard ()).…”
Section: Introductionmentioning
confidence: 99%
“…In this section, we provide a brief description of the model by Bontemps et al (1999), which we will extend by allowing the job offer arrival rate to differ across employed and unemployed individuals, as in Shephard (2017) and Engbom and Moser (2017). We start by describing firms' and individuals' strategies.…”
Section: Model Descriptionmentioning
confidence: 99%
“…Before the introduction of a statutory uniform minimum wage of 8.50 euros per hour in 2015, 1 minimum wages had been implemented only at the sectoral level in a small number of industrial sectors. We estimate the wage-posting model by Bontemps et al (1999), extended along the lines of Shephard (2017) to allow for different job offer arrival rates for the employed and the unemployed. The model is well-suited for our purposes.…”
Section: Introductionmentioning
confidence: 99%
“… See Shephard () for a discussion of smoothing the labor supply function in wage posting models (Burdett and Mortensen ()). …”
mentioning
confidence: 99%