Aronsson, Thomas () (Department of Economics, Umeå University) Dalin, Torbjörn () (Department of Economics, Umeå University) Sjögren, Tomas () (Department of Economics, Umeå University)
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This 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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Paper 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: Handle: RePEc:hhs:umnees:0635
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 Email: Web page: http://www.econ.umu.se/ More information through EDIRC
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