NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Micro and Macro Elasticities in a Life Cycle Model With Taxes

Richard Rogerson, Johanna Wallenius

NBER Working Paper No. 13017
Issued in April 2007
NBER Program(s):   EFG   LS   PE

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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Document Object Identifier (DOI): 10.3386/w13017

Published: Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.

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