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Optimal Redistributive Taxation in a Search Equilibrium Model

Author

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  • Hungerbühler, Mathias

    (University of Namur)

  • Lehmann, Etienne

    (CRED, Université Panthéon Assas Paris 2)

  • Parmentier, Alexis

    (University of Evry)

  • Van der Linden, Bruno

    (IRES, Université catholique de Louvain)

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.

Suggested Citation

  • Hungerbühler, Mathias & Lehmann, Etienne & Parmentier, Alexis & Van der Linden, Bruno, 2005. "Optimal Redistributive Taxation in a Search Equilibrium Model," IZA Discussion Papers 1460, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1460
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    More about this item

    Keywords

    optimal income taxation; unemployment; wage bargaining; matching;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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