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Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions

Author

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  • Aronsson, Thomas

    () (Department of Economics, Umeå University)

  • Sjögren, Tomas

    (Department of Economics, Umeå University)

Abstract

This paper concerns optimal taxation and provision of a public good in the context of the mixed tax problem, where the set of tax instruments consists of a nonlinear income tax and linear commodity taxes. The analysis is based on a two-type model with endogenous wage rates. Contrary to previous studies, we allow for imperfect competition in the labor market resulting from the influence of unions over wage formation. The results imply that the employment effects associated with each policy instrument are important to consider. In addition, the effective marginal tax rate of the highest income earners may be either positive or negative. Finally, if concern for employment and/or self-selection make the government choose a lower level of unemployment income than it would otherwise have done, it will to some extent compensate the unemployed by providing more of the public good and via lower commodity taxes.

Suggested Citation

  • Aronsson, Thomas & Sjögren, Tomas, 2001. "Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions," Umeå Economic Studies 568, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0568
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    Cited by:

    1. Engström, Per, 2003. "Unemployment Benefits and Optimal Non-Linear Income Taxation," Working Paper Series 2003:3, Uppsala University, Department of Economics.
    2. repec:ebl:ecbull:v:8:y:2004:i:3:p:1-9 is not listed on IDEAS
    3. Diego Martínez López & A. Jesús Sánchez Fuentes, "undated". "Optimal Provision Of Public Inputs In A Second Best Scenario (*)," Working Papers 17-05 Classification-JEL , Instituto de Estudios Fiscales.
    4. Mathias, HUNGERBUEHLER, 2004. "The impact of Union Power on the Optimal Income Tax Schedule," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004034, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Diego Martinez-Lopez, 2004. "The optimal provision of public inputs in a second best scenario," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-9.

    More about this item

    Keywords

    Optimal taxation; provision of public goods; unemployment;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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