Taxes, benefits, and careers: Complete versus incomplete markets

Lars Ljungqvist, Thomas J. Sargent

    Research output: Contribution to journalArticle

    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 languageEnglish (US)
    Pages (from-to)98-125
    Number of pages28
    JournalJournal of Monetary Economics
    Volume55
    Issue number1
    DOIs
    StatePublished - 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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