IDEAS home Printed from https://ideas.repec.org/p/hhs/uunewp/2001_019.html
   My bibliography  Save this paper

Optimal Taxation in Search Equilibrium with Home Production

Author

Listed:
  • Engström, Per

    (Department of Economics)

  • Holmlund, Bertil

    (Department of Economics)

  • Kolm, Ann-Sofie

    (Department of Economics)

Abstract

The paper develops a two-sector general equilibrium search model where "goods" are produced exclusively in the market and "services" are produced both in the market and within the households. We use the model to examine how unemployment and welfare are affected by labor taxes in general and sectoral tax differentiation in particular. We find that a tax cut on services reduces unemployment whereas a tax cut on goods has no effect. A reform involving tax differentiation, with lower taxes on services, is welfare improving. Numerical calibrations of the model suggest that the welfare gains from tax differentiation are large if the government absorbs a substantial fraction of GDP.

Suggested Citation

  • Engström, Per & Holmlund, Bertil & Kolm, Ann-Sofie, 2001. "Optimal Taxation in Search Equilibrium with Home Production," Working Paper Series 2001:19, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2001_019
    as

    Download full text from publisher

    File URL: http://www.nek.uu.se/pdf/2001wp19.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kolm, Ann-Sofie & Larsen, Birthe, 2001. "Wages, Unemployment, and the Underground Economy," Working Paper Series 2001:8, Uppsala University, Department of Economics.
    2. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    3. Ann‐Sofie Kolm, 2000. "Labour Taxation in a Unionised Economy with Home Production," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 689-705, December.
    4. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
    5. Pissarides, Christopher & Mortensen, Dale T., 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers 2989, C.E.P.R. Discussion Papers.
    6. Engström, Per & Holmlund, Bertil & Kolm, Ann-Sofie, 2001. "Optimal Taxation in Search Equilibrium with Home Production," Working Paper Series 2001:19, Uppsala University, Department of Economics.
    7. Michael Smart, 1998. "Flat tax reform," Working Papers msmart-98-01, University of Toronto, Department of Economics.
    8. Kleven, Henrik Jacobsen & Richter, Wolfram F & Sorensen, Peter Birch, 2000. "Optimal Taxation with Household Production," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 584-594, July.
    9. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
    10. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    11. Bertil Holmlund, 2002. "International spillover effects of sectoral tax differentiation in unionized economies," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 207-229, April.
    12. Niels Fredriksen & Peter Hansen & Henrik Jacobsen & Peter Sørensen, 1995. "Subsidising consumer services: effects on employment, welfare and the informal economy," Fiscal Studies, Institute for Fiscal Studies, vol. 16(2), pages 71-93, May.
    13. Hian Hoon, 1996. "Payroll taxes and VAT in a labor-turnover model of the ‘natural rate’," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 369-383, July.
    14. Boone, J. & Bovenberg, A.L., 2000. "Optimal Labour Taxation and Search," Other publications TiSEM 0e32dd7e-34c5-4146-a855-0, Tilburg University, School of Economics and Management.
    15. Phelps, Edmund S & Zoega, Gylfi, 1998. "Natural-Rate Theory and OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 782-801, May.
    16. A. Lans Bovenberg & Frederick van der Ploeg, 2002. "Tax Reform, Structural Unemployment and the Environment," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 21, pages 379-396, Edward Elgar Publishing.
    17. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    18. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April.
    19. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
    20. Kolm, Ann-Sofie, 1998. "Differentiated payroll taxes, unemployment, and welfare," Journal of Public Economics, Elsevier, vol. 70(2), pages 255-271, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Engström, Per & Holmlund, Bertil & Kolm, Ann-Sofie, 2001. "Optimal Taxation in Search Equilibrium with Home Production," Working Paper Series 2001:19, Uppsala University, Department of Economics.
    2. Abou Kane, 2013. "Occupational choices in Senegalese labour market: a multinomial logit analysis," Post-Print hal-01929091, HAL.
    3. Abou Kane, 2014. "Analysis of Labour Market Participation in Senegal," Post-Print hal-01929090, HAL.
    4. Olivier, PIERARD, 2004. "Impact of Selective Reductions in Labor Taxation," LIDAM Discussion Papers IRES 2004035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Olivier Charlot, 2005. "Éducation, emploi et participation au marché du travail dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, vol. 71(1), pages 35-66.
    6. Zhang, Jie & Davies, James & Zeng, Jinli & McDonald, Stuart, 2008. "Optimal taxation in a growth model with public consumption and home production," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 885-896, April.
    7. Kotamäki Mauri, 2017. "Laffer Curves and Home Production," Nordic Tax Journal, Sciendo, vol. 2017(1), pages 59-69, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jan Boone & Peter Fredriksson & Bertil Holmlund & Jan C. van Ours, 2007. "Optimal Unemployment Insurance with Monitoring and Sanctions," Economic Journal, Royal Economic Society, vol. 117(518), pages 399-421, March.
    2. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    3. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, June.
    4. repec:hal:spmain:info:hdl:2441/8921 is not listed on IDEAS
    5. Strand, Jon, 2005. "Tax distortions, household production, and black-market work," European Journal of Political Economy, Elsevier, vol. 21(4), pages 851-871, December.
    6. Lans Bovenberg, 2003. "Tax Policy and Labor Market Performance," CESifo Working Paper Series 1035, CESifo.
    7. Alexis, PARMENTIER, 2006. "The effects of the marginal tax rate in a matching model with endogenous labor supply," Discussion Papers (ECON - Département des Sciences Economiques) 2006011, Université catholique de Louvain, Département des Sciences Economiques.
    8. Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2006. "Optimal Redistributive Taxation in a Search Equilibrium Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 743-767.
    9. Zhang, Jie & Davies, James & Zeng, Jinli & McDonald, Stuart, 2008. "Optimal taxation in a growth model with public consumption and home production," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 885-896, April.
    10. Etienne Lehmann & Bruno Van Der Linden, 2007. "On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 867-884, October.
    11. repec:spo:wpecon:info:hdl:2441/8921 is not listed on IDEAS
    12. Pekka Sinko, 2007. "Labour taxation, job creation and job destruction—Focusing on the role of wage setting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 583-604, October.
    13. Boone, Jan & Bovenberg, Lans, 2002. "Optimal labour taxation and search," Journal of Public Economics, Elsevier, vol. 85(1), pages 53-97, July.
    14. repec:hal:wpspec:info:hdl:2441/8921 is not listed on IDEAS
    15. Engström, Per, 2002. "Optimal Non-Linear Income Taxation in Search Equilibrium," Working Paper Series 2002:18, Uppsala University, Department of Economics.
    16. repec:dgr:rugccs:200409 is not listed on IDEAS
    17. Doménech, Rafael & Garcí­a, José Ramón, 2008. "Unemployment, taxation and public expenditure in OECD economies," European Journal of Political Economy, Elsevier, vol. 24(1), pages 202-217, March.
    18. Heijdra, Ben J. & Ligthart, Jenny E., 2004. "Labor tax reform and equilibrium unemployment: a search and matching approach," CCSO Working Papers 200409, University of Groningen, CCSO Centre for Economic Research.
    19. Aubert, Diane & Chiroleu-Assouline, Mireille, 2019. "Environmental tax reform and income distribution with imperfect heterogeneous labour markets," European Economic Review, Elsevier, vol. 116(C), pages 60-82.
    20. Guillaume Wilemme, 2021. "Optimal Taxation to Correct Job Mismatching," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 170-197, April.
    21. Lehmann, Etienne & Parmentier, Alexis & Van Der Linden, Bruno, 2011. "Optimal income taxation with endogenous participation and search unemployment," Journal of Public Economics, Elsevier, vol. 95(11), pages 1523-1537.
    22. Edmund S. Phelps, 1998. "Designing a Capitalist Economy for Fast Growth and High Employment in Today's Globalized World Economy," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(1), pages 87-103, November.
    23. Bertil Holmlund & Ann-Sofie Kolm, 2000. "Environmental Tax Reform in a Small Open Economy With Structural Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(3), pages 315-333, May.
    24. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.

    More about this item

    Keywords

    Taxation; Home production; Search; Unemployment;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:uunewp:2001_019. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ulrika Öjdeby (email available below). General contact details of provider: https://edirc.repec.org/data/nekuuse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.