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Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses

  • Laurence Jacquet
  • Etienne lehmann
  • Bruno Van Der Linden

    ()

    (THEMA, Universite de Cergy-Pontoise
    CREST
    IRES - Université Catholique de Louvain and FNRS)

This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework where (voluntary) nonparticipation and (involuntary) un- employment are endogenous. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employ- ment 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.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2012-26.

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Date of creation: 2012
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Handle: RePEc:ema:worpap:2012-26
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  1. 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.
  2. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," IZA Discussion Papers 1810, Institute for the Study of Labor (IZA).
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  10. Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2008. "Optimal Income Taxation with Endogenous Participation and Search Unemployment," Documents de recherche 08-16, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
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  14. 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.
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  22. 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.
  23. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
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  27. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.
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