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Optimal Redistribution with Labor Supply Dependent Productivity

Author

Listed:
  • Eren Gürer
  • Alfons Weichenrieder

Abstract

This study examines optimal government redistribution in a Mirrleesian framework, accounting for a negative effect of longer working hours on productivity. A government ignoring this effect perceives labor supply as insufficient and sets lower marginal income taxes to encourage work. In contrast, a government recognizing the endogenous relationship between productivity and labor supply redistributes more. However, the resulting marginal taxes are still lower than those predicted by standard models where productivity is independent of working hours.

Suggested Citation

  • Eren Gürer & Alfons Weichenrieder, 2025. "Optimal Redistribution with Labor Supply Dependent Productivity," CESifo Working Paper Series 11866, CESifo.
    • Handle: RePEc:ces:ceswps:_11866
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp11866.pdf
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    More about this item

    Keywords

    working hours; productivity; optimal redistribution; self-confirming policy equilibrium.;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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