EQUILIBRIUM SEARCH AND TAX CREDIT REFORM |
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| Authors: | Andrew Shephard |
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| Institution: | University of Pennsylvania, U.S.A.I am indebted to Jean‐Marc Robin for his extensive advice and support. I thank Chris Flinn and anonymous referees for comments that have greatly improved this article. I am also grateful to Richard Blundell, Kirill Evdokimov, Guy Laroque, Costas Meghir, Morten Ravn, participants on the Review of Economic Studies Tour, and numerous seminar participants for useful comments. Material from the Quarterly Labour Force Survey is crown copyright and has been made available by the Office for National Statistics through the Economic and Social Data Service. Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen's Printer for Scotland. The Office for National Statistics and the Economic and Social Data Service bear no responsibility for the analysis or interpretation. Please address correspondence to: Andrew Shephard, 522 McNeil Building, Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, U.S.A. Phone: 215‐898‐7408. E‐mail: . |
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| 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 alternative policies, with equilibrium effects shown to become important as the generosity of tax credits is increased. |
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