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Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions

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Author Info

  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Sjögren, Tomas

    (Department of Economics, Umeå University)

Abstract

This paper concerns optimal taxation and provision of a public good in the context of the mixed tax problem, where the set of tax instruments consists of a nonlinear income tax and linear commodity taxes. The analysis is based on a two-type model with endogenous wage rates. Contrary to previous studies, we allow for imperfect competition in the labor market resulting from the influence of unions over wage formation. The results imply that the employment effects associated with each policy instrument are important to consider. In addition, the effective marginal tax rate of the highest income earners may be either positive or negative. Finally, if concern for employment and/or self-selection make the government choose a lower level of unemployment income than it would otherwise have done, it will to some extent compensate the unemployed by providing more of the public good and via lower commodity taxes.

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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 568.

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Length: 31 pages
Date of creation: 24 Sep 2001
Date of revision:
Handle: RePEc:hhs:umnees:0568

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Keywords: Optimal taxation; provision of public goods; unemployment;

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Cited by:
  1. Diego Martinez-Lopez, 2004. "The optimal provision of public inputs in a second best scenario," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-9.
  2. 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).
  3. Engström, Per, 2003. "Unemployment Benefits and Optimal Non-Linear Income Taxation," Working Paper Series 2003:3, Uppsala University, Department of Economics.
  4. Diego Martínez López & A. Jesús Sánchez Fuentes, . "Optimal Provision Of Public Inputs In A Second Best Scenario (*)," Working Papers 17-05 Classification-JEL , Instituto de Estudios Fiscales.
  5. repec:ebl:ecbull:v:8:y:2004:i:3:p:1-9 is not listed on IDEAS

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