Espen Rasmus Moen, NHH

Equilibrium Worker-Firm Allocations and the Deadweight Losses of Taxation

Abstract

We analyse the deadweight losses of tax-induced labor misallocation in an equilibrium model of the labour market where workers search to climb a job ladder and firms post vacancies. Workers differ in abilities. Jobs differ in productivities and amenities. A planner uses affine tax functions to finance lump-sum transfers to all workers and unemployment benefits. The competitive search equilibrium maximizes after-tax utility subject to resource constraints and the tax policy. A higher tax rate distorts search effort, job ranking and vacancy creation. Distortions vary on the job ladder, but always result in deadweight losses. We calibrate the model using matched employer-employee data from Denmark. The marginal deadweight loss is 33 percent of the tax base, and primarily arise from distorted search effort and vacancy creation. Steeply rising deadweight losses from distorted vacancy creation imply that the deadweight loss in the calibrated economy exceeds those incurred by very inequality averse social planners.

Espen Rasmus Moen is a Professor of Economics at BI Norwegian Business School. He holds a Ph.D in Economics from the London School of Economics, where he was also employed as Lecturer. In the academic year 2004-2005 he was visiting professor at Northwestern University. From 2011-2016 he was non-voting member of the board of Norges Bank, which is also the board of the Government pension fund (NBIM).

His area of research is mostly within economic theory, with applications mainly to labor economics and industrial organization. He has also done empirical works within labor economics.

He has published in leading journals like the Journal of Political Economy, the Review of Economic Studies, and American Economic Review. He is Research Fellow at the CEPR (Center for Economic Policy Research), and Fellow of the European Economic Association. In 2011 He was Scientific Chairman for the EEA annual congress in Oslo. He is also associated editor (previously editor) of the Scandinavian Journal of Economics and partner in the consulting firm Oeconomica.

You can read more about Espen Rasmus Moen here

CEBI contact: Claus Thustrup Kreiner