Tax transfers schemes, informality and search frictions in a small open economy

Available from: 
October 2013
Paper author(s): 
Monica Robayo-Abril (Georgetown University)
Macroeconomics - Economic growth - Monetary Policy

In this paper we want to evaluate the impact of market-oriented structural reforms, in particular labor market policies(payroll and severance taxes) and social assistance programs (subsidized health), upon long run unemployment, wage inequality and the distribution of employment across sectors in a small open economy with search frictions and idiosyncratic productivity shocks. We build an equilibrium search and matching friction model of a labor markets, a substantial extension of the search and matching friction model developed by Pissarides (1994) with endogenous job destruction and stochastic job matching, in which an informal sector is incorporated and heterogeneous agents are subject to idiosyncratic productivity shocks. We solve the model numerically and calibrate the structural parameters of the model using micro data, and then we simulate the model for the Colombian economy by performing a set of experiments consistent the structural reforms implemented in the 1990's and 2000's.


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Research section: 
Lacea 2013 annual meeting
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