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Optimal Redistributive Taxation in a Search Equilibrium Model

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Author Info
MATHIAS HUNGERBÜHLER
ETIENNE LEHMANN
ALEXIS PARMENTIER
BRUNO VAN DER LINDEN

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Abstract

This paper characterizes optimal non-linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets. Redistributive taxation distorts labour demand and wages. Compared to their efficient values, gross wages, unemployment, and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even at the top. Finally, numerical simulations suggest that redistribution is much more important in our setting than in a comparable Mirrlees-type setting. Copyright 2006 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2006.00394.x
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 73 (2006)
Issue (Month): 3 (07)
Pages: 743-767
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Handle: RePEc:bla:restud:v:73:y:2006:i:3:p:743-767

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  6. Mathias, HUNGERBUEHLER, 2004. "The impact of Union Power on the Optimal Income Tax Schedule," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  15. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
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  20. Dreze, Jacques H. & Malinvaud, Edmond, 1994. "Growth and employment: The scope of a European initiative," European Economic Review, Elsevier, vol. 38(3-4), pages 489-504, April. [Downloadable!] (restricted)
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  24. Etienne LEHMANN & Bruno VAN DER LINDEN, 2002. "On the optimality of search matching equilibrium when workers are risk averse," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  25. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March. [Downloadable!] (restricted)
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  27. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR, CES, MSH, vol. 12(25), pages 221-264, October. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Etienne Lehmann & Alexis Parmentier & Bruno van der Linden, 2008. "Optimal Income Taxation with Endogenous Participation and Search Unemployment," IDEP Working Papers 0805, Institut d'economie publique (IDEP), Marseille, France, revised 01 Sep 2008. [Downloadable!]
    Other versions:
  2. Alexis, PARMENTIER, 2006. "The effects of the marginal tax rate in a matching model with endogenous labor supply," Discussion Papers (ECON - Département des Sciences Economiques) 2006011, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  3. Engström, Per, 2007. "Wage Formation and Redistribution," Working Paper Series 2007:12, Uppsala University, Department of Economics. [Downloadable!]
  4. Etienne Lehmann & Mathias Hungerbühler, 2007. "On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory," IZA Discussion Papers 2957, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Anna, BATYRA & Henri R., SNEESSENS, 2007. "Selective Reductions in Labour Taxation : Labour Market Adjustments and Macroeconomic Performance," Discussion Papers (ECON - Département des Sciences Economiques) 2007001, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  6. Benoit Julien & John Kennes & Ian King & Sephorah Mangin, 2008. "Directed Search, Unemployment and Public Policy," Department of Economics - Working Papers Series 1049, The University of Melbourne. [Downloadable!]
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