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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/46538
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| Title: | | Optimal income taxation with endogenous participation and search unemployment  |
| 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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