Abstract: This paper studies the aggregate and distributional effects of raising the top marginal income tax rate in the presence of tax avoidance. To this end, we develop a quantitative macroeconomic model with heterogeneous agents and occupational choice in which entrepreneurs can avoid taxes in two ways. On the extensive margin, entrepreneurs can choose the legal form of their business organization to reduce their tax burden. On the intensive margin, entrepreneurs can shift their income between different tax bases. In a quantitative application to the US economy, we find that tax avoidance weakens the distortionary effects of higher income taxes at the top but makes them ineffective at lowering inequality. Eliminating tax avoidance by implementing an equal tax treatment of entrepreneurs across all legal forms of business organization substantially increases tax revenue, aggregate output, and welfare.

Abstract: Women are more likely to work in jobs with low hours than men. Low-hours jobs are associated with lower hourly wages and are more likely impacted by minimum wage policies that set a floor on hourly wages. We document that the first German minimum wage increased women's transition towards jobs with higher weekly hours. We construct and estimate an equilibrium search model with demographic and firm productivity heterogeneity and jobs that differ in both wage and hours requirements. The model replicates observed gender gaps in employment, hours and wage and the positive relationship between hours and hourly wages. We implement the minimum wage in our model with a penalty to address non-compliance. Based on our model, the minimum wage primarily reduces the gender income gap through the gender wage gap, but it also reduces gender employment and hours gaps due to an upward reallocation effect that results in women's increased participation in higher-hours jobs with lower separation rates. We find that despite a shift in the offer distribution toward full-time jobs, firms' response to the minimum wage dampens the upward reallocation in hours due to disproportionate wage increases in low-hours job offers. We also study the heterogeneity in the minimum wage's impact across different demographic groups.

Abstract: We quantify the unintended effects of a low-wage payroll tax reduction on workers who are not directly impacted using an equilibrium search model featuring bargaining, worker and firm productivity heterogeneity, labor taxes, and a minimum wage. The decentralized economy is inefficient due to search externalities and labor market policies. We estimate the model based on French data and find that a major low-wage payroll tax reduction in 1995 increased labor force participation of low-productivity workers and vacancy-posting of low-productivity firms, generating negative but small spillover and reallocation effects due to congestion. Nevertheless, the tax reduction yields an overall improvement in economic efficiency because it corrects existing policy distortions that disincentivize labor force participation. We find that the optimal policy mix is a lower minimum wage and lower payroll taxes compared to the policies in place in the early 1990s.