Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/141478
Authors: 
Kroft, Kory
Kucko, Kavan
Lehmann, Etienne
Schmieder, Johannes F.
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9719
Abstract: 
We derive a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account.
Subjects: 
optimal income taxation
labor supply
labor demand
JEL: 
H21
J22
J23
Document Type: 
Working Paper

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