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Heterogeneity, transfer progressivity, and business

Heterogeneity, transfer progressivity, and business
Heterogeneity, transfer progressivity, and business
This paper studies how transfer progressivity influences aggregate fluctuations when interacting with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how transfer progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that it delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. A counterfactual exercise shows that higher progressivity achieved by a faster phase-out of transfers would strengthen our mechanism. Finally, we provide suggestive empirical evidence on the heterogeneity of employment responses across the wage distribution.
Centre for Economic Policy Research
Jang, Youngsoo
616d2665-221f-4832-9861-7fb2b1388347
Sunakawa, Takeki
661d28fd-6269-4854-965c-47343c9bd478
Yum, Minchul
23e96e8e-0dbd-4b6a-b3d1-538ab7d008b4
Jang, Youngsoo
616d2665-221f-4832-9861-7fb2b1388347
Sunakawa, Takeki
661d28fd-6269-4854-965c-47343c9bd478
Yum, Minchul
23e96e8e-0dbd-4b6a-b3d1-538ab7d008b4

Jang, Youngsoo, Sunakawa, Takeki and Yum, Minchul (2023) Heterogeneity, transfer progressivity, and business Centre for Economic Policy Research

Record type: Monograph (Discussion Paper)

Abstract

This paper studies how transfer progressivity influences aggregate fluctuations when interacting with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how transfer progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that it delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. A counterfactual exercise shows that higher progressivity achieved by a faster phase-out of transfers would strengthen our mechanism. Finally, we provide suggestive empirical evidence on the heterogeneity of employment responses across the wage distribution.

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More information

Published date: 24 January 2023

Identifiers

Local EPrints ID: 474063
URI: http://eprints.soton.ac.uk/id/eprint/474063
PURE UUID: b89e5fca-e15e-44bd-96b5-44937b7f5dc3
ORCID for Minchul Yum: ORCID iD orcid.org/0000-0002-1272-9822

Catalogue record

Date deposited: 10 Feb 2023 17:32
Last modified: 17 Mar 2024 04:18

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Contributors

Author: Youngsoo Jang
Author: Takeki Sunakawa
Author: Minchul Yum ORCID iD

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