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Should Low Skilled Work be Subsidized ?

Philippe Choné and Guy Laroque

No 2006-08, Working Papers from Center for Research in Economics and Statistics

Abstract: A number of countries have recently implemented variants of a negative incometax, to push the less skilled members of the economy into work, or to make workpay in comparison with welfare benefits. In most cases, these measures haveresulted for the concerned groups in a decrease of the tax rates, that remainpositive, rather than in a subsidy, in conformity with the recommendations ofthe current theory of optimal taxation. Indeed in the Mirrlees setup (continuouslabor supply or intensive margin, unobserved productivity, utilitarian planner)the marginal tax rate is non negative at the optimum.The purpose of the paper is to question this result of the theory. We studyeconomies where it is optimal to have people in the economy work more than inthe laissez-faire. We provide an example in the intensive setup. The utilitarianoptima in the extensive model seem to exhibit this property quite generally. Wehope that these results help towards providing some theoretical foundations forlow skilled work subsidy, and extending the scope of welfare to work programs.

Pages: 35
Date: 2006
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