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Optimal Labour Taxation and Search

Author

Listed:
  • Boone, J.

    (Tilburg University, Center For Economic Research)

  • Bovenberg, A.L.

    (Tilburg University, Center For Economic Research)

Abstract

This paper explores the optimal role of the tax system in alleviating labour-market imperfections, raising revenue, and correcting the income distribution. For this purpose, the standard search model of the labour market is extended by introducing non-linear vacancy costs due to scarce entrepreneurial talent and by allowing for arbitrage between being a worker and being an entrepreneur. We study how these extensions affect the following three major implications of the standard model: (1) only the ad valorem component of the wage tax should be employed to raise revenue; (2) the optimal tax system should not distort labour-market tightness; (3) the tax system cannot redistribute from workers to entrepreneurs.

Suggested Citation

  • Boone, J. & Bovenberg, A.L., 2000. "Optimal Labour Taxation and Search," Discussion Paper 2000-17, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:0e32dd7e-34c5-4146-a855-0a03e5a536c2
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • 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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