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Income Taxation in a Frictional Labor Market

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Author Info
Joel Shapiro ()

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Abstract

A 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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File URL: http://www.econ.upf.edu/docs/papers/downloads/559.pdf
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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 559.

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Date of creation: Jun 2001
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Handle: RePEc:upf:upfgen:559

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Web page: http://www.econ.upf.edu/

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Related research
Keywords: Wage posting; optimal income taxation; search;

Other versions of this item:

Find related papers by JEL classification:
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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