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Optimal Income Taxation in an Equilibrium Unemployment Model : Mirrlees meets Pissarides

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  • Mathias, HUNGERBUELHER

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Etienne, LEHMANN

    (Université Paris 1)

  • Alexis PARMENTIER

    (Université Paris 2)

  • Bruno VAN DER LINDEN

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

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 labor markets. Redistributive taxation distorts labor demand and wages. Compared to the laissez-faire, gross wages, unemployment and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even the top. Finally, numerical simulations suggest that redistribution is much more important in our setting than in a comparable Mirrlees (1971) setting.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2003024.

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Length: 28
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:ctl:louvir:2003024

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Web page: http://www.uclouvain.be/ires
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Keywords: Optimal Income Taxation; Unemployment; Wage Bargaining; Matching;

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Cited by:
  1. Boone, J. & Bovenberg, A.L., 2006. "Unemployment vs in-work benefits with search unemployment and observable abilities," Open Access publications from Tilburg University urn:nbn:nl:ui:12-175048, Tilburg University.
  2. HARITON, Cyril & PIASER, Gwenaël, 2004. "When redistribution leads to regressive taxation," CORE Discussion Papers 2004020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Belan, Pascal & Gregoir, Stéphane & Carré, Martine, 2009. "Subsidizing low-skilled jobs in a dual labor market," Economics Papers from University Paris Dauphine 123456789/8134, Paris Dauphine University.
  4. Lehmann, Etienne & Van der Linden, Bruno, 2004. "On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse," IZA Discussion Papers 1172, Institute for the Study of Labor (IZA).
  5. 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).

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