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Optimal labour taxation and search

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Listed author(s):
  • Boone, Jan
  • Bovenberg, Lans

Abstract

This paper explores the optimal role of the tax system in alleviating labour-market imperfections, raising revenue, and correcting the income distribution. For this purpose, the standard search model of the labour market is extended by introducing non-linear vacancy costs due to scarce entrepreneurial talent and by allowing for arbitrage between being a worker and being an entrepreneur. We study how these extensions affect the following three major implications of the standard model: (1) only the ad valorem component of the wage tax should be employed to raise revenue; (2) the optimal tax system should not distort labour-market tightness; (3) the tax system cannot redistribute from workers to entrepreneurs.

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

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 85 (2002)
Issue (Month): 1 (July)
Pages: 53-97

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Handle: RePEc:eee:pubeco:v:85:y:2002:i:1:p:53-97
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

Keywords:

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Find related papers by JEL classification:
  • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
  • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
  • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental 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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  1. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
  2. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March.
  3. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
  4. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
  5. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  6. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
  7. Ben Lockwood & Alan Manning, 1993. "Wage Setting and the Tax System: theory and Evidence for the UK," CEP Discussion Papers dp0115, Centre for Economic Performance, LSE.
  8. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
  9. Christopher A. Pissarides, 1983. "Efficiency Aspects of the Financing of Unemployment Insurance and Other Government Expenditure," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 57-69.
  10. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
  11. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
  12. Lans Bovenberg, A. & de Mooij, Ruud A., 1997. "Environmental tax reform and endogenous growth," Journal of Public Economics, Elsevier, vol. 63(2), pages 207-237, January.
  13. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 239-262, August.
  14. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
  15. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  16. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  17. Myles, Gareth D., 1989. "Ramsey tax rules for economies with imperfect competition," Journal of Public Economics, Elsevier, vol. 38(1), pages 95-115, February.
  18. Christopher A. Pissarides, 1985. "Taxes, Subsidies and Equilibrium Unemployment," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 121-133.
  19. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  20. Tyrvainen, Timo, 1995. "Wage Setting, Taxes and Demand for Labour: Multivariate Analysis of Cointegrating Relations," Empirical Economics, Springer, vol. 20(2), pages 271-297.
  21. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  22. Shi, Shouyong & Wen, Quan, 1999. "Labor market search and the dynamic effects of taxes and subsidies," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 457-495, April.
  23. A. Bovenberg & Frederick Van der Ploeg, 1998. "Consequences of Environmental Tax Reform for Unemployment and Welfare," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(2), pages 137-150, September.
  24. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  25. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
  26. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
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