Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/82903 
Authors: 
Year of Publication: 
2002
Series/Report no.: 
Working Paper No. 2002:18
Publisher: 
Uppsala University, Department of Economics, Uppsala
Abstract: 
The paper extends the basic Stiglitz (1982) model of optimal income taxation into general search equilibrium. When we extend the basic taxation model to include a more realistic treatment of the labor market, a number of new interesting mechanisms arise. When wages are fixed we find that a work hour effect gives the government incentives to lower the marginal tax rate for both high and low skilled workers. The optimal marginal tax on high skilled is thus negative, and the sign for the low skilled marginal tax is ambiguous. With wages determined by bargaining between firm and worker the results are changed. Both marginal tax rates are of ambiguous sign. The tax systems' effects on the wage formation and the unemployment rates may result in new intricate redistribution channels. Simulations show that the marginal tax rate for high skilled is increasing in the level of redistribution when wages are fixed, but decreasing in the level of redistribution when wages are determined by bargaining.
Subjects: 
Optimal non-linear income taxation
search
unemployment
JEL: 
H21
J22
J41
J64
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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