Macroeconomic effects of tax and transfers programs

The first dissertation essay studies how a simple tax and transfer program as it is a proportional tax on labor income and a lump-stun transfer affects the allocation of labor, productivity and welfare. In particular, it assesses the consequences of increases in the scale of this tax and transfer program in the context of a model with idiosyncratic productivity shocks and incomplete markets. This work also compares the outcomes for both hours worked and welfare relative to the results obtained in a standard neoclassical growth model, featuring no idiosyncratic shocks and complete markets. The main finding is that the impact on hours remains very large as it was previously found in the literature, but the welfare consequences are very different. The analysis also suggests that tax and transfer policies may have large effects on average labor productivity via selection effects on employment.;The second dissertation essay focus on the role that one of the most important tax and transfer programs across the Organisation for Economic Co-operation and Development (OECD) social security plays into the allocation of labor at older ages. The essay builds upon the observation that there are large differences in the employment of older people and also in the social security rules. The essay evaluates the importance of social security rules to explain cross country differences in retirement. This work finds that a life cycle model with idiosyncratic labor income risk provides a very good depiction of the OECD employment at older ages. In particular, it finds that at ages 60--64 the correlation between the model simulations and the data is .75, which is remarkably high. This means that differences in these features of social security are key to understand employment at older ages. The correlation between the model simulations and the data is also high at ages 50--54, 65--69 and 70--74. Finally, this work investigates what are the most important contributors to differences in employment at older age, finding that the replacement rate and the earnings test explain 90% of the observed variability in the data. However differences in the entitlement age have no explanatory power. This result stands up against the high correlation between entitlement age and retirement found in the reduced form econometric literature.