Edited by Ramón Gómez-Salvador, Ana Lamo, Barbara Petrongolo, Melanie Ward and Etienne Wasmer
Tax eﬀects on work activity, industry mix and shadow economy size 105 DISCUSSION Pietro Garibaldi The chapter is a nice contribution to the growing literature on the adverse macroeconomic eﬀects of total taxation (Prescott, 2003; Nickell, 2003). It sets forth a very simple theory of task allocation and shows that market taxation takes away activity from the market towards home production.1 There are strong empirical predictions on the adverse eﬀects of taxation on the aggregate employment rate, as well as on the employment rate in speciﬁc sectors of the economy. Using simple bi-variate relationships between employment rates and total taxation, the chapter ﬁnds empirical support for the adverse eﬀects of taxation. I organize my comments in three parts. First, I present a graphical illustration of the theory of task allocation presented here by Davis and Henrekson. Second, I discuss the importance of a critical maintained assumption of the authors – namely the elasticity of labour supply – and show how the basic results would change with a more empirical plausible assumption. Third, I oﬀer a further robustness check on the empirical results of the chapter by considering the role of start-up costs, a product market institution that, from a theoretical standpoint, has similar empirical predictions on the labour market. A Theory of Task Allocation Let us assume that there exists a continuum of tasks that can be carried out in two diﬀerent ways. In other words, we can imagine that each particular task (task B,...
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