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

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  • M. HUNGERBÜHLER
  • E. LEHMANN
  • A. PARMENTIER
  • P. VAN DER LINDEN

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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Paper provided by ERMES, University Paris 2 in its series Working Papers ERMES with number 0306.

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Date of creation: 2003
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Handle: RePEc:erm:papers:0306

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Cited by:
  1. 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).
  2. Pascal Belan & Martine Carré & Stéphane Gregoir, 2007. "Subsidizing low-skilled jobs in a dual labor market," THEMA Working Papers 2007-17, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  3. 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).
  4. Cyril Hariton & Gwena�L Piaser, 2007. "When Redistribution Leads to Regressive Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 589-606, 08.
  5. 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.

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