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Title:Optimal income taxation with endogenous participation and search unemployment PDF Logo
Authors:Lehmann, Etienne
Parmentier, Alexis
van der Linden, Bruno
Issue Date:2011
Series/Report no.:CESifo working paper: Public Finance 3324
Abstract:We characterize optimal redistributive taxation when individuals are heterogeneous in their skills and their values of non-market activities. Search-matching frictions on the labor markets create unemployment. Wages, labor demand and participation are endogenous. Average tax rates are increasing at the optimum. This shifts wages below their laissez faire value and distorts labor demand upwards. The marginal tax rate is positive at the top of the skill distribution even when the latter is bounded. These results are analytically shown under a Maximin objective when the elasticity of participation is decreasing in the skill level and are numerically confirmed under a more general objective.
Subjects:non-linear taxation
redistribution
adverse selection
random participation
unemployment
labor market frictions
JEL:H21
H23
J64
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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