Optimal Income Taxation in an Equilibrium Unemployment Model: Mirrlees meets Pissarides

Hungerbuelher Mathias, Etienne Lehmann (), Alexis Parmentier and Bruno Van der Linden
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Hungerbuelher Mathias: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)
Alexis Parmentier: Université Paris 2

No 2003024, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper characterizes optimal non-linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labor markets. Redistributive taxation distorts labor demand and wages. Compared to the laissez-faire, gross wages, unemployment and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even the top. Finally, numerical simulations suggest that redistribution is much more important in our setting than in a comparable Mirrlees (1971) setting.

Keywords: Optimal Income Taxation; Unemployment; Wage Bargaining; Matching (search for similar items in EconPapers)
JEL-codes: D82 H21 H24 J64 (search for similar items in EconPapers)
Pages: 28
Date: 2003-12-01
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (6)

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Working Paper: Optimal Income Taxation in an Equilibrium Unemployment Model: Mirrlees meets Pissarides (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2003024

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