When to Tax Labour?
We analyze optimal dynamic taxation when labor supply is indivisible, as in Hansen (1985) and Rogerson (1988). Markets are complete, and an employment lottery determines who works. The consumer can buy insurance to diversify this extrinsic income uncertainty. The optimal wage tax is zero in both the short and long run only when leisure is neutral. If leisure is normal (inferior), labor should be taxed (subsidized). We further derive a wide range of preferences, including HARA, which encompasses normal and non-normal leisure. For those preferences we characterize the dynamic paths of the wage tax.
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- Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
- Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 587-609, August.
- Chan, Louis Kuo Chi, 1983. "Uncertainty and the neutrality of government financing policy," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 351-372.
- Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, vol. 76(4), pages 676-691, September.
- Hansen, Gary D. & Sargent, Thomas J., 1988. "Straight time and overtime in equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 281-308.
- Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
- Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-388, June.
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Elsevier, vol. 28(1), pages 59-83, October.
- Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Casey B. Mulligan, 1998.
"Microfoundations and macro implications of indivisible labor,"
Discussion Paper / Institute for Empirical Macroeconomics
126, Federal Reserve Bank of Minneapolis.
- Casey B. Mulligan, 1999. "Microfoundations and Macro Implications of Indivisible Labor," NBER Working Papers 7116, National Bureau of Economic Research, Inc.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
- Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-17.
- Shell, Karl & Wright, Randall, 1993. "Indivisibilities, Lotteries, and Sunspot Equilibria," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 1-17, January.
- Karl Shell & Randall Wright, 1991. "Indivisibilities, lotteries, and sunspot equilibria," Staff Report 133, Federal Reserve Bank of Minneapolis.
- Karl Shell & Randall Wright, 2010. "Indivisibilities, Lotteries and Sunspot Equilibria," Levine's Working Paper Archive 2061, David K. Levine.
- Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-468, June. Full references (including those not matched with items on IDEAS)
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