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

Domenico Ferraro | Zendy; Giuseppe Fiori | Zendy

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

Author(s) -

Domenico Ferraro,

Giuseppe Fiori

Publication year - 2020

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.20160419

Subject(s) - economics , demographics , unemployment , baby boomers , tax rate , demographic economics , unemployment rate , labour economics , monetary economics , macroeconomics , demography , sociology

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. (JEL E24, E62, H24, H31, J21)

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