Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171150
Authors: 
Kroft, Kory
Kucko, Kavan
Lehmann, Etienne
Schmieder, Johannes Friedrich
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6686
Abstract: 
We derive a sufficient statistics optimal income 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 income 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.
Document Type: 
Working Paper

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