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Taxes And The Labor Market

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Executive Summary

The authors estimate the effect of exogenous changes in taxes on the US unemployment rate and on several other labor market variables. The estimates are based on a revised version of the Romer and Romer (2010) narrative record of exogenous tax innovations, with the additional benefit of distinguishing between capital income and labor income taxes. They first show that accounting for the difference between automatic and discretionary tax changes in the revised specification is crucial in order to obtain an unbiased measure of the tax multipliers. They then obtain the following main results.

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