Income taxation in a frictional labor market
AbstractA new model of wage dispersion is used to examine welfare aspects of income taxation. The model retains the dynamics of wage posting models while exogenizing search e¤ort, therefore allowing more insight into policy issues. The results highlight effects that standard analyses do not take into account. The optimal income tax should depend on an incidence effect between workers and firms. This incidence effect arises from firms trying to lower wages as much as possible. An employment tax proves, in certain cases, to be the best method to encourage labor force participation.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 559.
Date of creation: Jun 2001
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Web page: http://www.econ.upf.edu/
Wage posting; optimal income taxation; search;
Other versions of this item:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
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