TY  - RPRT
        AU  - Chugh, Sanjay K.
AU  - Lechthaler, Wolfgang
AU  - Merkl, Christian
        TI  - Optimal Fiscal Policy with Labor Selection
        PY  - 2018/Jun/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 11600
        UR  - https://www.iza.org/index.php/publications/dp11600
        AB  - This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the "tax-smoothing" results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-model-consistent wedges and inefficiencies in order to understand optimal tax volatility.
        KW  - labor market frictions
KW  - hiring costs
KW  - efficiency
KW  - optimal taxation
KW  - labor wedge
KW  - zero intertemporal distortions
        ER  -