Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses

Laurence Jacquet, Etienne Lehmann (etienne.lehmann@gmail.com) and Bruno Van der Linden

No 5642, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper characterizes the optimal redistributive tax schedule in a matching unemployment framework with endogenous (voluntary) nonparticipation and (involuntary) unemployment. The optimal employment tax rate is given by an inverse employment elasticity rule. This rule depends on the global response of the employment rate, which depends not only on the participation (labor supply) responses, but also on the vacancy posting (labor demand) responses and on the product of these two types of responses. For plausible parameters, our matching environment induces much lower employment tax rates than the usual competitive participation model.

Keywords: unemployment; labor market frictions; optimal taxation (search for similar items in EconPapers)
JEL-codes: D82 H21 J64 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-04
New Economics Papers: this item is included in nep-acc, nep-dge, nep-lab and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - revised version published as 'Optimal Income Taxation with Kalai Wage Bargaining and Endogenous Participation' in: Social Choice and Welfare, 2014, 42(2), 381-402

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Related works:
Working Paper: Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses (2012)
Working Paper: Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses (2012)
Working Paper: Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses (2011)
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