A BEJM Topics article.

Abstract

This paper compares the macroeconomic implications of overtime taxation and wage and employment subsidies in a dynamic general equilibrium model in which hours and bodies are imperfect substitutes due to team work and externality-based commuting costs. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase as taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view

Submitted: February 3, 2009 · Accepted: August 16, 2009

Recommended Citation

Osuna, Victoria (2009) "Taxing Overtime or Subsidizing Employment," The B.E. Journal of Macroeconomics: Vol. 9 : Iss. 1 (Topics), Article 41.
DOI: 10.2202/1935-1690.1892
Available at: http://www.bepress.com/bejm/vol9/iss1/art41