Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses

Laurence Jacquet, Etienne Lehmann () and Bruno Van der Linden

No 3779, CESifo Working Paper Series from CESifo

Abstract: This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework where (voluntary) nonparticipation and (involuntary) unemployment are endogenous. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two responses. For plausible values of the parameters, our matching environment induces much lower employment tax rates than the usual competitive model with endogenous participation only.

Keywords: optimal taxation; labor market frictions; unemployment; Kalai solution (search for similar items in EconPapers)
JEL-codes: D82 H21 J64 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses (2012)
Working Paper: Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses (2011)
Working Paper: Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses (2011)
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