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Income taxation in a frictional labor market

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  • Joel Shapiro

Abstract

A new model of wage dispersion is used to examine welfare aspects of income taxation. The model retains the dynamics of wage posting models while exogenizing search e¤ort, therefore allowing more insight into policy issues. The results highlight effects that standard analyses do not take into account. The optimal income tax should depend on an incidence effect between workers and firms. This incidence effect arises from firms trying to lower wages as much as possible. An employment tax proves, in certain cases, to be the best method to encourage labor force participation.

Suggested Citation

  • Joel Shapiro, 2001. "Income taxation in a frictional labor market," Economics Working Papers 559, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:559
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    References listed on IDEAS

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    Cited by:

    1. Shapiro, Joel, 2006. "Wage and effort dispersion," Economics Letters, Elsevier, vol. 92(2), pages 163-169, August.
    2. Natalya Y. Shelkova, 2009. "The Minimum Wage Spike in the Search Economy with Wage-Posting," Working papers 2009-40, University of Connecticut, Department of Economics.
    3. Natalya Y. Shelkova, 2009. "Collusion at the Non-Binding Minimum Wage: An Automatic Stabilizer?," Working papers 2009-41, University of Connecticut, Department of Economics.
    4. Zanetti Francesco, 2012. "The Laffer Curve in a Frictional Labor Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-23, September.

    More about this item

    Keywords

    Wage posting; optimal income taxation; search;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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