Optimal Taxation in Search Equilibrium with Home Production

Per Engstrom, Bertil Holmlund and Ann-Sofie Kolm ()

No CESifo Working Paper No. 613, CESifo Working Paper Series from CESifo Group Munich

Abstract: The paper develops a two-sector general equilibrium search model where _goods_ are produced exclusively in the market and _services_ are produced both in the market and within the households. We use the model to examine how unemployment and welfare are affected by labor taxes in general and sectoral tax differentiation in particular. We find that a tax cut on services reduces unemployment whereas a tax cut on goods has no effect. A reform involving tax differentiation, with lower taxes on services, is welfare improving. Numerical calibrations of the model suggest that the welfare gains from tax differentiation are large if the government absorbs a substantial fraction of GDP.

Keywords: taxation; home production; search; unemployment (search for similar items in EconPapers)
JEL-codes: H21 J22 J41 J64 (search for similar items in EconPapers)
Date: 2001
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Working Paper: Optimal Taxation in Search Equilibrium with Home Production (2001)
Working Paper: Optimal Taxation in Search Equilibrium with Home Production (2001)
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