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

Kory Kroft, Kavan Kucko, Etienne Lehmann () and Johannes Schmieder

No 12328, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We derive a sufficient statistics optimal income 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 income 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.

New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2017-09
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Related works:
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2016) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
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