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Optimal Redistributive Taxation in a Search Equilibrium Model

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Author Info
Hungerbühler, Mathias (IRES, Catholic University of Louvain and ERMES, University of Paris 2)
Lehmann, Etienne () (ERMES, University of Paris 2, IRES, Catholic University of Louvain and IZA Bonn)
Parmentier, Alexis (EUREQua, University of Paris 1 and ERMES, University of Paris 2)
Van der Linden, Bruno (IRES, Catholic University of Louvain, FNRS, Belgium, ERMES, University of Paris 2 and IZA Bonn)

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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 their efficient values, gross wages, unemployment and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even at 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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1460.

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Length: 35 pages
Date of creation: Jan 2005
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Handle: RePEc:iza:izadps:dp1460

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Related research
Keywords: optimal income taxation unemployment wage bargaining matching

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  6. Mathias, HUNGERBUEHLER, 2004. "The impact of Union Power on the Optimal Income Tax Schedule," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2004034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  16. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
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  20. Dreze, Jacques H. & Malinvaud, Edmond, 1994. "Growth and employment: The scope of a European initiative," European Economic Review, Elsevier, vol. 38(3-4), pages 489-504, April. [Downloadable!] (restricted)
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  24. Etienne LEHMANN & Bruno VAN DER LINDEN, 2002. "On the optimality of search matching equilibrium when workers are risk averse," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2002023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  27. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR, CES, MSH, vol. 12(25), pages 221-264, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Etienne Lehmann & Mathias Hungerbühler, 2007. "On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory," IZA Discussion Papers 2957, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Alexis, PARMENTIER, 2006. "The effects of the marginal tax rate in a matching model with endogenous labor supply," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2006011, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  3. Anna, BATYRA & Henri R., SNEESSENS, 2007. "Selective Reductions in Labour Taxation : Labour Market Adjustments and Macroeconomic Performance," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2007001, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
  4. Engström, Per, 2007. "Wage Formation and Redistribution," Working Paper Series 2007:12, Uppsala University, Department of Economics. [Downloadable!]
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