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A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment

Author

Listed:
  • Mathias Hungerbühler

    (FUNDP - Fondation Universitaire Notre Dame de la Paix - FUNDP - Facultés Universitaires Notre Dame de la Paix)

  • Etienne Lehmann

    (TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - UP2 - Université Panthéon-Assas - CNRS - Centre National de la Recherche Scientifique)

  • Alexis Parmentier

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Bruno van Der Linden

    (UCL - Université Catholique de Louvain = Catholic University of Louvain, ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - UP2 - Université Panthéon-Assas - CNRS - Centre National de la Recherche Scientifique)

Abstract

We consider an optimal nonlinear income tax problem in a model with search-matching unemployment and where the negotiated pre-tax wage decreases with marginal tax rate but increases with the level of tax. By omitting labor supply Responses, assuming no benefit for the unemployed and an efficient allocation in the absence of tax, we characterize the optimal equity-efficiency trade off. We show that in labor market specific to each interior level of skill, optimal wages and unemployment rates are distorted downwards. Moreover, average tax rate are increasing along the income distribution and marginal tax rate are positive at the top, even when the skill distribution is bonded.

Suggested Citation

  • Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno van Der Linden, 2012. "A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment," Post-Print hal-01243443, HAL.
    • Handle: RePEc:hal:journl:hal-01243443
    DOI: 10.4000/economiepublique.8601
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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