IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Optimal income taxation with Kalai wage bargaining and endogenous participation

  • Laurence Jacquet

    ()

  • Etienne Lehmann

    ()

  • Bruno Linden

    ()

This paper characterizes the optimal redistributive tax schedule in a search–matching framework where (voluntary) nonparticipation and (involuntary) unemployment are endogenous and wages are determined by proportional bargaining à la Kalai. The optimal employment tax rate is given by an inverse elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two responses. For plausible values of the parameters, our matching environment induces much lower employment tax rates than the usual competitive model with endogenous participation only. However, optimal employment tax rates are larger (in absolute value) when a given level of the global elasticity of employment is more due to search frictions and less due to participation responses. Copyright Springer-Verlag Berlin Heidelberg 2014

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s00355-013-0736-0
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Springer & The Society for Social Choice and Welfare in its journal Social Choice and Welfare.

Volume (Year): 42 (2014)
Issue (Month): 2 (February)
Pages: 381-402

as
in new window

Handle: RePEc:spr:sochwe:v:42:y:2014:i:2:p:381-402
DOI: 10.1007/s00355-013-0736-0
Contact details of provider: Web page: http://www.springer.com

Web page: http://www.unicaen.fr/recherche/mrsh/scw/

More information through EDIRC

Order Information: Web: http://www.springer.com/economics/economic+theory/journal/355

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  2. l'Haridon, Olivier & Malherbet, Franck & Pérez-Duarte, Sébastien, 2013. "Does bargaining matter in the small firms matching model?," Labour Economics, Elsevier, vol. 21(C), pages 42-58.
  3. Ehud Kalai, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Discussion Papers 179, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03.
  5. Guesnerie, Roger & Roberts, Kevin, 1984. "Effective Policy Tools and Quantity Controls," Econometrica, Econometric Society, vol. 52(1), pages 59-86, January.
  6. Boone, Jan & Fredriksson, Peter & Holmlund, Bertil & van Ours, Jan, 2002. "Optimal unemployment insurance with monitoring and sanctions," Working Paper Series 2002:21, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  7. Choné, Philippe & Laroque, Guy, 2011. "Optimal taxation in the extensive model," Journal of Economic Theory, Elsevier, vol. 146(2), pages 425-453, March.
  8. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  9. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
  10. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  11. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
  12. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
  13. Etienne Lehmann & Alexis Parmentier & Bruno Vanderlinden, 2011. "Optimal income taxation with endogenous participation and search unemployment," Post-Print hal-01248156, HAL.
  14. Kramarz, Francis & Philippon, Thomas, 2000. "The Impact of Differential Payroll Tax Subsidies on Minimum Wage Employment," IZA Discussion Papers 219, Institute for the Study of Labor (IZA).
  15. 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.
  16. Hungerbühler, Mathias & Lehmann, Etienne & Parmentier, Alexis & Van der Linden, Bruno, 2005. "Optimal Redistributive Taxation in a Search Equilibrium Model," IZA Discussion Papers 1460, Institute for the Study of Labor (IZA).
  17. Robin Boadway & Katherine Cuff & Nicolas Marceau, 2000. "Redistribution and Employment Policies with Endogenous Unemployment," Cahiers de recherche CREFE / CREFE Working Papers 121, CREFE, Université du Québec à Montréal.
  18. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers 2001-26, Centre de Recherche en Economie et Statistique.
  19. Hungerbühler, Mathias & Lehmann, Etienne, 2009. "On the optimality of a minimum wage: New insights from optimal tax theory," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 464-481, April.
  20. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  21. Christopher Bruce & Jeremy Clark, 2012. "The Impact Of Entitlements And Equity On Cooperative Bargaining: An Experiment," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 867-879, October.
  22. Paul Beaudry & David A. Green & Benjamin M. Sand, 2010. "How Much Is Employment Increased by Cutting Labor Costs? Estimating the Elasticity of Job Creation," NBER Working Papers 15790, National Bureau of Economic Research, Inc.
  23. Jesse Rothstein, 2009. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence," Working Papers 1160, Princeton University, Department of Economics, Center for Economic Policy Studies..
  24. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  25. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  26. repec:adr:anecst:y:2004:i:73:p:01 is not listed on IDEAS
  27. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.
  28. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May.
  29. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  30. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:sochwe:v:42:y:2014:i:2:p:381-402. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

or (Rebekah McClure)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.