Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach

Kory Kroft, Kavan Kucko (), Etienne Lehmann () and Johannes Schmieder
Additional contact information
Kavan Kucko: Boston University

No 9719, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We derive a sufficient statistics optimal 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 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.

Keywords: labor supply; optimal income taxation; labor demand (search for similar items in EconPapers)
JEL-codes: H21 J22 J23 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-02
New Economics Papers: this item is included in nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published in: American Economic Journal, Economic Policy, 2020, 12 (1), 254-292.

Downloads: (external link)
https://docs.iza.org/dp9719.pdf (application/pdf)

Related works:
Journal Article: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2020)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2020)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2017)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2017)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015)
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp9719

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().