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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, 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.

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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. 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. Graafland, J.J. & Huizinga, F.H., 1998. "Taxes and benefits in a non-linear wage equation," MPRA Paper 21076, University Library of Munich, Germany.
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  7. Boone, Jan & Bovenberg, A Lans, 2001. "Optimal Labour Taxation and Search," CEPR Discussion Papers 3002, C.E.P.R. Discussion Papers.
  8. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  9. Bovenberg, A.L. & de Mooij, R.A., 1994. "Environmental tax reform and endogenous growth," Discussion Paper 1994-98, Tilburg University, Center for Economic Research.
  10. 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.
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  12. Christopher A. Pissarides, 1985. "Taxes, Subsidies and Equilibrium Unemployment," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 121-133.
  13. 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.
  14. 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.
  15. 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.
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  17. Joseph Stiglitz, 1999. "Taxation, Public Policy, and Dynamics of Unemployment," International Tax and Public Finance, Springer, vol. 6(3), pages 239-262, August.
  18. 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.
  19. 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.
  20. 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.
  21. Tyrvainen, Timo, 1995. "Wage Setting, Taxes and Demand for Labour: Multivariate Analysis of Cointegrating Relations," Empirical Economics, Springer, vol. 20(2), pages 271-97.
  22. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, December.
  23. 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.
  24. Myles, Gareth D., 1989. "Ramsey tax rules for economies with imperfect competition," Journal of Public Economics, Elsevier, vol. 38(1), pages 95-115, February.
  25. 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.
  26. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
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