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Optimal Income Taxation and the Labour Market: An Overview

Author

Listed:
  • Robin Boadway
  • Jean-François Tremblay

Abstract

This article presents a survey of how optimal income taxation is influenced by labour market considerations. We begin with the standard supply-side optimal income tax model of Mirrlees, and outline the various extensions to that model. We then consider how optimal taxation is affected by various demand-side considerations in a full-employment setting, including endogenous wage rates, human capital investment, extensive-margin labour variation and its applications, minimum wages, and occupational choice. Various sources of involuntary unemployment are next considered, such as inability to work, long-term search unemployment, and temporary search unemployment. The latter raises the need for unemployment insurance as well as redistributive taxation. We conclude with a catalogue of unresolved issues. (JEL codes: H21, H23, J2) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Robin Boadway & Jean-François Tremblay, 2013. "Optimal Income Taxation and the Labour Market: An Overview," CESifo Economic Studies, CESifo, vol. 59(1), pages 93-148, March.
  • Handle: RePEc:oup:cesifo:v:59:y:2013:i:1:p:93-148
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifs008
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    Cited by:

    1. Kory Kroft & Kucko Kavan & Etienne Lehmann & Johannes Schmieder, 2015. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," Working Papers hal-01292126, HAL.
    2. Xi CHEN & Ioana SALAGEAN & Benteng ZOU, 2016. "Optimal Income Taxation for the Alleviation of Working-Poverty When Domestic Work is Rewarded," CREA Discussion Paper Series 16-01, Center for Research in Economic Analysis, University of Luxembourg.
    3. Bas Jacobs, 2013. "From Optimal Tax Theory to Applied Tax Policy," CESifo Working Paper Series 4151, CESifo Group Munich.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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