%0 Report
        %A Chugh, Sanjay K.
%A Lechthaler, Wolfgang
%A Merkl, Christian
        %T Optimal Fiscal Policy with Labor Selection
        %D 2018
        %8 2018 Jun
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 11600
        %U https://www.iza.org/publications/dp11600
        %X 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.
        %K labor market frictions
%K hiring costs
%K efficiency
%K optimal taxation
%K labor wedge
%K zero intertemporal distortions