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Taxation in Matching Markets

Author

Listed:
  • Dupuy, Arnaud

    (University of Luxembourg)

  • Galichon, Alfred

    (New York University)

  • Jaffe, Sonia

    (University of Chicago)

  • Kominers, Scott Duke

    (Harvard University)

Abstract

We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss.

Suggested Citation

  • Dupuy, Arnaud & Galichon, Alfred & Jaffe, Sonia & Kominers, Scott Duke, 2020. "Taxation in Matching Markets," IZA Discussion Papers 13328, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13328
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    Other versions of this item:

    • Arnaud Dupuy & Alfred Galichon & Sonia Jaffe & Scott Duke Kominers, 2020. "Taxation In Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1591-1634, November.

    References listed on IDEAS

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    Cited by:

    1. Dupuy, Arnaud & Kennes, John & Lyng, Ran Sun, 2021. "The Market for CEOs: Building Legacy and Feeling Empowered Matter," IZA Discussion Papers 14803, Institute of Labor Economics (IZA).
    2. Esben Scrivers Andersen, 2024. "Note on solving one-to-one matching models with linear transferable utility," Papers 2409.05518, arXiv.org, revised Dec 2024.
    3. Koji Yokote, 2020. "On optimal taxes and subsidies: A discrete saddle-point theorem with application to job matching under constraints," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 5(1), pages 37-77, December.
    4. Devansh Jalota & Michael Ostrovsky & Marco Pavone, 2022. "Matching with Transfers under Distributional Constraints," Papers 2202.05232, arXiv.org, revised Apr 2022.

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    More about this item

    Keywords

    matching; taxation;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D3 - Microeconomics - - Distribution
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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