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Title:Optimal tax policy and wage subsidy in an imperfectly competitive economy PDF Logo
Authors:Selim, Sheikh
Issue Date:2010
Series/Report no.:Cardiff Economics Working Papers E2010/15
Abstract:In an imperfectly competitive economy with direct and indirect taxes, the first best wage subsidy overcompensates workers and provides the incentive to misreport working hours. We show that in the second best optimum where the government cannot use a wage subsidy, the optimal policy is to tax labour income at a zero rate. This policy is optimal because it minimizes the incentive to misreport working hours.
Subjects:Optimal Taxation
Ramsey Problem
Wage Subsidy
JEL:D42
E62
H21
H30
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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