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Optimal labour taxation and search

  • Boone, Jan
  • Bovenberg, Lans

This Paper explores the optimal role of the tax system in alleviating labour-market imperfections and raising revenue. For this purpose, the standard search model of the labour market is extended by introducing scarce entrepreneurial talent and arbitrage between the supply and demand. We study how these extensions affect the following two 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.

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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

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  1. Boone, J. & Bovenberg, A.L., 2000. "Optimal Labour Taxation and Search," Discussion Paper 2000-17, Tilburg University, Center for Economic Research.
  2. 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.
  3. Christopher A. Pissarides, 1985. "Taxes, Subsidies and Equilibrium Unemployment," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 121-133.
  4. van Ours, J.C. & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Other publications TiSEM c199f354-b73c-49b6-84f6-e, Tilburg University, School of Economics and Management.
  5. 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.
  6. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-89, September.
  7. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  8. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
  9. 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.
  10. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  11. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  12. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental tax reform and endogenous growth," Discussion Paper 1994-98, Tilburg University, Center for Economic Research.
  13. 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.
  14. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer, vol. 6(3), pages 239-262, August.
  15. 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.
  16. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  17. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
  18. Broersma, L. & van Ours, J.C., 1998. "Job Searchers, Job Matches and the Elasticity of Matching," Discussion Paper 1998-72, Tilburg University, Center for Economic Research.
  19. Tyrvainen, Timo, 1995. "Wage Setting, Taxes and Demand for Labour: Multivariate Analysis of Cointegrating Relations," Empirical Economics, Springer, vol. 20(2), pages 271-97.
  20. 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.
  21. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
  22. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, June.
  23. 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.
  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. Myles, Gareth D., 1989. "Ramsey tax rules for economies with imperfect competition," Journal of Public Economics, Elsevier, vol. 38(1), pages 95-115, February.
  26. 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.
  27. A. Bovenberg & Frederick Van der Ploeg, 1998. "Consequences of Environmental Tax Reform for Unemployment and Welfare," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(2), pages 137-150, September.
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