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Tax policy in a model of search with training

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  • Jan Boone

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  • Ruud de Mooij

Abstract

This paper develops a model of search on the labour market with training. The model reveals how the tax system can restore the social optimum if the Hosios condition is not satisfied in the private equilibrium. Furthermore, the effects are explored of a second-best reform from a specific tax per job to a marginal wage tax, when a given amount of public revenue has to be raised.� We find that (i) a marginal wage tax is less distortionary to raise revenue than is a specific tax per job, provided that training is not distorted initially; (ii) this conclusion may reverse in the presence of training distortions; (iii) marginal wage taxes are less distortionary in economies characterized by commitment in wage bargaining, such as the European labour market. Hence, tax reforms that reduce the tax burden per job and raise the marginal wage tax, such as an EITC or a negative income tax, are more attractive in Europe than in the US.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Research Memorandum with number 161.

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Date of creation: Feb 2000
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Handle: RePEc:cpb:resmem:161

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  1. Dupor, Bill, et al, 1996. "Some Effects of Taxes on Schooling and Training," American Economic Review, American Economic Association, American Economic Association, vol. 86(2), pages 340-46, May.
  2. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  3. Bovenberg, A Lans & de Mooij, Ruud A & Graafland, Johan J, 1998. "Tax Reform and the Dutch Labour Market: An Applied General Equilibrium Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1983, C.E.P.R. Discussion Papers.
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  6. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, Elsevier, vol. 6(1), pages 77-93, March.
  7. Ours, J.C. van & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80319, Tilburg University.
  8. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  9. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  10. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 605-37, May.
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  12. James Heckman & Lance Lockner & Christopher Taber, 1999. "Human capital formation and general equilibrium treatment effects: a study of tax and tuition policy," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 25-40, March.
  13. Robert Haveman, 1995. "Reducing Poverty while Increasing Employment: A Primer on Alternative Strategies, and a Blueprint," OECD Jobs Study Working Papers, OECD Publishing 7, OECD Publishing.
  14. Teulings,Coen & Hartog,Joop, 1998. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521590730.
  15. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 12(25), pages 221-264, October.
  16. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  17. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 63(3), pages 311-329, February.
  18. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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Cited by:
  1. Lehmann E. & Van Der Linden B., 2004. "On the Optimality of Search Matching Equilibrium when workers are risk adverse," Working Papers ERMES, ERMES, University Paris 2 0406, ERMES, University Paris 2.

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