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Should Low Skilled Work be Subsidized ?

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  • Philippe Choné

    (Crest)

  • Guy Laroque

    (Crest)

Abstract

A number of countries have recently implemented variants of a negative incometax, to push the less skilled members of the economy into work, or to make workpay in comparison with welfare benefits. In most cases, these measures haveresulted for the concerned groups in a decrease of the tax rates, that remainpositive, rather than in a subsidy, in conformity with the recommendations ofthe current theory of optimal taxation. Indeed in the Mirrlees setup (continuouslabor supply or intensive margin, unobserved productivity, utilitarian planner)the marginal tax rate is non negative at the optimum.The purpose of the paper is to question this result of the theory. We studyeconomies where it is optimal to have people in the economy work more than inthe laissez-faire. We provide an example in the intensive setup. The utilitarianoptima in the extensive model seem to exhibit this property quite generally. Wehope that these results help towards providing some theoretical foundations forlow skilled work subsidy, and extending the scope of welfare to work programs.

Suggested Citation

  • Philippe Choné & Guy Laroque, 2006. "Should Low Skilled Work be Subsidized ?," Working Papers 2006-08, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2006-08
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    Cited by:

    1. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
    2. Pierre Cahuc & Guy Laroque, 2014. "Optimal Taxation and Monopsonistic Labor Market: Does Monopsony Justify the Minimum Wage?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 259-273, April.
    3. 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.
    4. Beaudry, Paul & Blackorby, Charles & Szalay, Dezso, 2006. "Taxes and Employment Subsidies in Optimal Redistribution Programs (Revised Version)," The Warwick Economics Research Paper Series (TWERPS) 779, University of Warwick, Department of Economics.

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