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Estimating the Welfare Cost of Taxation in a Labour Market with Unemployment and Non-Participation

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  • Hogan, V.

Abstract

The standard public finance analysis of the welfare cost of labour income taxation is based on the estimation of labour supply functions that treat unemployed individuals as non-participants. This paper applies econometric models of multinomial discrete choice to the labour market, explicitly allowing individuals to be in any of three possible states (employment, unemployment and non-participation). Based on these estimates, we present calculations of the dead-weight loss of taxes, which turn out to be much larger than the loss suggested by the standard literature.

Suggested Citation

  • Hogan, V., 1999. "Estimating the Welfare Cost of Taxation in a Labour Market with Unemployment and Non-Participation," Papers 99/2, College Dublin, Department of Political Economy-.
    • Handle: RePEc:fth:dublec:99/2
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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