Abstract
We use a simple theoretical framework, a building block of many macroeconomic models, to study the prominently debated relationship between the model parametrisation of the Frisch elasticity and the reduced-form evidence on the elasticity of labour. Focusing on tax holidays, we show that the elasticity measured with a reduced-form approach is only equal to the Frisch-elasticity parameter if there are no income or general equilibrium effects. Furthermore, for a wide range of standard values of the Frisch-elasticity parameter, the response of labour generated by a tax holiday in the model is aligned with the reduced-form evidence.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
