Optimal Redistribution with Labor Supply Dependent Productivity

Eren Gürer and Alfons Weichenrieder

No 11866, CESifo Working Paper Series from CESifo

Abstract: This study examines optimal government redistribution in a Mirrleesian framework, accounting for a negative effect of longer working hours on productivity. A government ignoring this effect perceives labor supply as insufficient and sets lower marginal income taxes to encourage work. In contrast, a government recognizing the endogenous relationship between productivity and labor supply redistributes more. However, the resulting marginal taxes are still lower than those predicted by standard models where productivity is independent of working hours.

Keywords: working hours; productivity; optimal redistribution; self-confirming policy equilibrium. (search for similar items in EconPapers)
JEL-codes: H21 H31 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-inv, nep-lma and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11866

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