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Wage Formation and Redistribution

  • Engström, Per

    ()

    (Department of Economics)

The paper extends the basic Stiglitz (1982) model of optimal nonlinear income taxation into a model featuring endogenous unemployment and wages. This means that the government needs to consider the effects on wages and unemployment when designing the optimal tax function. The tax systems’ effects on the wage formation and the unemployment rates result in new intricate redistribution channels. A key result of the paper is that the government may, in order to redistribute, use the marginal tax rates to raise the unemployment rate for the high-skilled and lower it for the low-skilled workers.

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File URL: http://uu.diva-portal.org/smash/get/diva2:54304/FULLTEXT01.pdf
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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2007:12.

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Length: 22 pages
Date of creation: 13 Feb 2007
Date of revision:
Handle: RePEc:hhs:uunewp:2007_012
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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  1. Boone, J. & Bovenberg, A.L., 2002. "The Optimal Taxation of UnskilIed Labor with Job Search and Social Assistance," Discussion Paper 2002-57, Tilburg University, Center for Economic Research.
  2. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  3. Hungerbühler, Mathias & Lehmann, Etienne & Parmentier, Alexis & Van der Linden, Bruno, 2005. "Optimal Redistributive Taxation in a Search Equilibrium Model," IZA Discussion Papers 1460, Institute for the Study of Labor (IZA).
  4. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  5. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  6. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence," Papers 15, Uppsala - Working Paper Series.
  7. Engström, Per, 2002. "Optimal Non-Linear Income Taxation in Search Equilibrium," Working Paper Series 2002:18, Uppsala University, Department of Economics.
  8. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  9. Engström, Per, 2003. "Unemployment Benefits and Optimal Non-Linear Income Taxation," Working Paper Series 2003:3, Uppsala University, Department of Economics.
  10. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
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