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  3. American Economic Journal: Macroeconomics
  4. April 2020
  5. The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

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Abstract

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of the unemployment rates to tax changes varies significantly across age groups: the unemployment rate response of the young is nearly twice as large as that of the old. This heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the unemployment rate to tax cuts. We find that the aging of the baby boomers considerably reduces the effects of tax cuts on aggregate unemployment.

Citation

Ferraro, Domenico, and Giuseppe Fiori. 2020. "The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks." American Economic Journal: Macroeconomics, 12 (2): 167-93. DOI: 10.1257/mac.20160419

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E62 Fiscal Policy
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • H31 Fiscal Policies and Behavior of Economic Agents: Household
  • J21 Labor Force and Employment, Size, and Structure
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