Labor Tax Cuts and Employment: A General Equilibrium Approach for France

By Raphael A Espinoza, . Esther Perez Ruiz

July 1, 2014

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Raphael A Espinoza, and . Esther Perez Ruiz Labor Tax Cuts and Employment: A General Equilibrium Approach for France, (USA: International Monetary Fund, 2014) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper presents a simple supply side, general equilibrium model to estimate the macroeconomic effects of labor tax cuts. The model assumes that output is produced using capital, unskilled and skilled workers, and public servants. Wage formation for skilled workers features a Blanchflower-Oswald wage curve, while the labor supply for unskilled workers is very elastic around the minimum wage for small changes in employment. The model is calibrated for France and used to estimate the output and employment effects induced by two recent tax reforms: the Crédit d’Impôt pour la Compétitivité et l’Emploi (CICE) and the Pacte de Solidarité Responsabilité (RSP). We find that the tax cuts, if not offset by other fiscal measures, would contribute overall to creating around 200,000 jobs in the short run (600,000 jobs in the long run). Since the model abstracts from demand side effects, the results should be interpreted as providing estimates of the effect of tax measures on potential output and potential employment.

Subject: Employment, Labor, Labor costs, Labor taxes, Public employment, Taxes, Wages

Keywords: CICE, Crédit d’impôt pour la compétitivité et l’emploi, Differential wage elasticities to unemployment, Differential wage elasticity, Employment, Employment outcome, Labor cost, Labor cost reductions, Labor costs, Labor demand function, Labor income, Labor tax wedge, Labor taxes, Minimum wage, Pacte de responsabilité, Public employment, Rate of return, Responsibility Pact, Social security contributions, Spending cut, Supply curve, Wage, Wage curve, Wage distribution, Wages, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/114
Stock No:

WPIEA2014114
ISBN:

9781498328197
ISSN:

1018-5941

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