Taxes, benefits, and careers: Complete versus incomplete markets

Lars Ljungqvist; Thomas J. Sargent

doi:10.1016/j.jmoneco.2007.10.003

Taxes, benefits, and careers: Complete versus incomplete markets

Lars Ljungqvist, Thomas J. Sargent

Research output: Contribution to journal › Article › peer-review

Abstract

An incomplete-market life-cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non-employment benefits. We compare aggregate and individual outcomes in this individualistic incomplete-market model with those in a comparable collectivist representative-family model with employment lotteries and complete-insurance markets. The incomplete- and complete-market structures assign leisure to different types of individuals who are distinguished by their human capital and age. These microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non-employment benefits, but remarkably, not to labor tax changes.

Original language	English (US)
Pages (from-to)	98-125
Number of pages	28
Journal	Journal of Monetary Economics
Volume	55
Issue number	1
DOIs	https://doi.org/10.1016/j.jmoneco.2007.10.003
State	Published - Jan 2008

Keywords

Benefits
Career
Complete markets
Employment lotteries
Human capital
Incomplete markets
Indivisible labor
Labor supply elasticity
Retirement
Taxes

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jmoneco.2007.10.003

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abstract = "An incomplete-market life-cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non-employment benefits. We compare aggregate and individual outcomes in this individualistic incomplete-market model with those in a comparable collectivist representative-family model with employment lotteries and complete-insurance markets. The incomplete- and complete-market structures assign leisure to different types of individuals who are distinguished by their human capital and age. These microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non-employment benefits, but remarkably, not to labor tax changes.",

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KW - Employment lotteries

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KW - Labor supply elasticity

KW - Retirement

KW - Taxes

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Taxes, benefits, and careers: Complete versus incomplete markets

Abstract

Keywords

ASJC Scopus subject areas

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