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Working Paper, No. 2003-29, 2003
Firing Costs and Business Cycle Fluctuations
This paper considers a real business cyclemodel with establishment level dynamics and uses it to analyze the effects of firing taxes. It finds that the firing taxes have significant consequences on business cycle fluctuations. The largest effects are on aggregate employment, which becomess less variable and more persistent. While the business cycle effects of firing taxes are sizable, their welfare consequences are completely dominated by their steady state effects.


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