Optimal Redistributive Taxation in a Search Equilibrium Model

Mathias Hungerbühler (), Etienne Lehmann (), Alexis Parmentier () and Bruno Van der Linden

No 1460, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 their efficient values, gross wages, unemployment and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even at 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: 35 pages
Date: 2005-01
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (43)

Published - published in: Review of Economic Studies, 2006, 73(3), 743-767

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Journal Article: Optimal Redistributive Taxation in a Search Equilibrium Model (2006)
Working Paper: Optimal Redistributive Taxation in a Search Equilibrium Model (2006)
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