Cover IMF Working Papers
Labor Tax Cuts and Employment: A General Equilibrium Approach for France
Author: Mr. Raphael A Espinoza and Mrs. Esther Perez Ruiz
Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 114
Language:
English
Publication Date:
01 Jul 2014
DOI:
https://doi.org/10.5089/9781498328197.001
ISBN:
9781498328197
ISSN:
1018-5941
Pages:
37
Keywords:
WP; wage; labor cost; rate of return; social security contributions; minimum wage; Responsibility Pact; pacte de responsabilité; crédit d’impôt pour la compétitivité et l’emploi; CICE; employment outcome; wage curve; spending cut; differential wage elasticity; labor income; wage distribution; differential wage elasticities to unemployment; labor cost reductions; supply curve; labor tax wedge; labor demand function; Employment; Wages; Labor costs; Public employment; Labor taxes
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (6.8 MB) Download Epub
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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund