Tehran Institute for Advanced Studies (TEIAS)

/ Equilibrium Worker-Firm Allocations and the Deadweight Losses of Taxation __ Espen R. Moen


Equilibrium Worker-Firm Allocations and the Deadweight Losses of Taxation (joint with J Bagger & R Vejlin)

Espen Moen-01

January 15, 2024
(25 Dey, 1402)



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January 14, 2024

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Espen R. Moen

Research Professor in Economics, Norwegian Business School


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 maximises 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 elasticity of taxable income is 0.13, 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 R. Moen

Espen is a Professor of Economics at BI Norwegian Business School. He holds a Ph.D in Economics from the London School of Economics. His area of research is mostly within economic theory, with applications mainly to labor economics and industrial organization. He has published in many leading journals like JPE, Restud and AER. Outside academia he has undertaken projects within several different industries, including telecommunication, agriculture, energy and housing.