The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks
83 Pages Posted: 6 Oct 2016
Date Written: September 7, 2016
Abstract
We investigate the consequences of demographic change for the effects of tax cuts in the United States over the post-WWII period. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of unemployment rates to tax changes largely varies across age groups: the unemployment rate response of the young is nearly twice as large as that of prime-age workers. Such heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the aggregate U.S. unemployment rate to tax cuts. We find that the aging of the Baby Boomers reduces the effects of tax cuts on aggregate unemployment by nearly fifty percent.
Keywords: Taxes; Demographics; Aging; Baby Boomers; Unemployment; Participation
JEL Classification: E24; E62; J11
Suggested Citation: Suggested Citation