Optimal Taxation and Redistribution in an OLG Model with Unemployment
AbstractThis paper concerns redistribution and optimal taxation in an OLG model with two employed ability-types. We assume that the wage rates are determined by bargaining between unions and firms, implying that the equilibrium is characterized by unemployment. The tax instruments are nonlinear taxes on labor income and capital income. We show that the policy instruments that are used to calculate the marginal labor income tax rate for each ability-type give rise to intertemporal tax base effects. As such, dynamic models may provide insights with respect to labor income taxation, which are not easily gained in static models. In addition, since the relationship between the employment and the capital stock implies production inefficiency at the second best optimum, imperfect competition in the labor market may, itself, justify capital income taxation.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 635.
Length: 25 pages
Date of creation: 19 Apr 2004
Date of revision:
Contact details of provider:
Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
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Optimal taxation; OLG model; union wage setting;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-04-25 (All new papers)
- NEP-DGE-2004-04-25 (Dynamic General Equilibrium)
- NEP-MAC-2004-04-25 (Macroeconomics)
- NEP-PBE-2004-04-25 (Public Economics)
- NEP-PUB-2004-05-02 (Public Finance)
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