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The optimal taxation of unskilled labor with job search and social assistance

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  • Boone, J.

    (Tilburg University)

  • Bovenberg, A.L.

    (Tilburg University)

Abstract

In order to explore the optimal taxation of low-skilled labor, we extend the standard model of optimal non-linear income taxation in the presence of quasi-linear preferences in leisure by allowing for involuntary unemployment, job search, an exogenous welfare benefit, and a non-utilitarian social welfare function.In trading off more low-skilled employment against more work effort of higher skilled workers, the government balances distortions on the search margin with those on work effort.Positive marginal tax rates at the bottom may help to encourage job search if this search is taxed on a net basis.Lower welfare benefits and search costs tend to reduce marginal tax rates throughout the skill distribution.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-140889.

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Date of creation: 2004
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Publication status: Published in Journal of Public Economics (2004) v.88, p.2227-2258
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-140889

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Web page: http://www.tilburguniversity.edu/

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