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Optimal Mirrleesian taxation in non-competitive labor markets

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Listed:
  • Carlos E. da Costa

    (FGV EPGE Brazilian School of Economics and Finance)

  • Lucas J. Maestri

    (FGV EPGE Brazilian School of Economics and Finance)

Abstract

This study investigated optimal labor income taxation in non-competitive labor markets. Necessary and sufficient conditions are provided for constrained efficient allocations that are implementable via taxes. Not all allocations that can be implemented in a competitive setting satisfy the necessary conditions for implementation. If an allocation that maximizes a utilitarian objective is implementable then almost all workers face negative marginal tax rates. If the planner’s objective is Rawlsian, implementation is always possible with a well-chosen unemployment benefit financed by taxes on profits.

Suggested Citation

  • Carlos E. da Costa & Lucas J. Maestri, 2019. "Optimal Mirrleesian taxation in non-competitive labor markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(4), pages 845-886, November.
    • Handle: RePEc:spr:joecth:v:68:y:2019:i:4:d:10.1007_s00199-018-1147-3
    DOI: 10.1007/s00199-018-1147-3
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    Cited by:

    1. Carlos E. da Costa & Lucas J. Maestri, 2019. "Optimal Mirrleesian taxation in non-competitive labor markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(4), pages 845-886, November.
    2. Zhigang Feng & Anne Villamil, 2022. "Funding employer-based insurance: regressive taxation and premium exclusions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 509-540, April.
    3. Thomas Aronsson & Luca Micheletto, 2017. "Optimal Redistributive Income Taxation and Efficiency Wages," Working Papers 107, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.
    4. Alexander Tarasov & Robertas Zubrickas, 2021. "Optimal Income Taxation under Monopolistic Competition," CESifo Working Paper Series 9309, CESifo.
    5. Albert Jan Hummel, 2021. "Monopsony power, income taxation and welfare," Tinbergen Institute Discussion Papers 21-051/VI, Tinbergen Institute.
    6. Bahal, Girish & Shrivastava, Anand, 2021. "Supply variabilities in public workfares," Journal of Development Economics, Elsevier, vol. 150(C).
    7. Albert Jan Hummel, 2021. "Tax Curvature," CESifo Working Paper Series 9220, CESifo.
    8. Aronsson, Thomas & Micheletto, Luca, 2017. "Optimal Redistributive Income Taxation and Efficiency Wages," Umeå Economic Studies 953, Umeå University, Department of Economics.
    9. Albert Jan Hummel, 2021. "Monopsony Power, Income Taxation and Welfare," CESifo Working Paper Series 9128, CESifo.
    10. Hummel, Albert Jan, 2023. "Tax curvature," Journal of Public Economics, Elsevier, vol. 224(C).
    11. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2017. "Heterogeneity in Needs and Negative Marginal Tax Rates," CESifo Working Paper Series 6708, CESifo.

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    More about this item

    Keywords

    Mirrlees’ problem; Non-competitive labor markets; Tax implementation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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