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Should Low Skilled Work be Subsidized ?

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  • Philippe Choné

    (Crest)

  • Guy Laroque

    (Crest)

Abstract

A number of countries have recently implemented variants of a negative incometax, to push the less skilled members of the economy into work, or to make workpay in comparison with welfare benefits. In most cases, these measures haveresulted for the concerned groups in a decrease of the tax rates, that remainpositive, rather than in a subsidy, in conformity with the recommendations ofthe current theory of optimal taxation. Indeed in the Mirrlees setup (continuouslabor supply or intensive margin, unobserved productivity, utilitarian planner)the marginal tax rate is non negative at the optimum.The purpose of the paper is to question this result of the theory. We studyeconomies where it is optimal to have people in the economy work more than inthe laissez-faire. We provide an example in the intensive setup. The utilitarianoptima in the extensive model seem to exhibit this property quite generally. Wehope that these results help towards providing some theoretical foundations forlow skilled work subsidy, and extending the scope of welfare to work programs.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-08.

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Length: 35
Date of creation: 2006
Date of revision:
Handle: RePEc:crs:wpaper:2006-08

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Cited by:
  1. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.
  2. Beaudry, Paul & Blackorby, Charles & Szalay, Dezso, 2006. "Taxes and Employment Subsidies in Optimal Redistribution Programs (Revised Version)," The Warwick Economics Research Paper Series (TWERPS) 779, University of Warwick, Department of Economics.
  3. Martin Hellwig, 2005. "A Contribution to the Theory of Optimal Utilitarian Income Taxation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2005_23, Max Planck Institute for Research on Collective Goods.
  4. Cahuc, Pierre & Laroque, Guy, 2007. "Optimal Taxation and Monopsonistic Labour Market: Does Monopsony Justify the Minimum Wage?," CEPR Discussion Papers 6416, C.E.P.R. Discussion Papers.

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