Optimal Income Tax Policy and Wage Subsidy
Sheikh Selim ()
Additional contact information
Sheikh Selim: Cardiff University, UK
AIUB Bus Econ Working Paper Series from American International University-Bangladesh (AIUB), Office of Research and Publications (ORP)
We show that in an imperfectly competitive economy, if the government cannot use wage subsidy, in a steady state and in the initial period the optimal labour income tax rate is zero. In an imperfectly competitive economy, since investment is primarily triggered by the motive to earn higher profits, over accumulation of capital induces suboptimal level of working hours. We argue that if the government is restricted to subsidize wage, the optimal policy should set zero tax on labour income which will encourage workers to increase working hours back to the optimal level.
Date: 2008-01, Revised 2008-01
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://orp.aiub.edu/FileZone/abewp/orpadmin-2008- ... BUS-ECON-2008-02.pdf File-Function: First version, (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aiu:abewps:02
Access Statistics for this paper
More papers in AIUB Bus Econ Working Paper Series from American International University-Bangladesh (AIUB), Office of Research and Publications (ORP)
Bibliographic data for series maintained by Ziarat H. Khan ().