Optimal progressive taxation in a model with endogenous skill supply

Kostantinos Angelopoulos, Stylianos Asimakopoulos and Jim Malley

No 2014-029, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper examines whether efficiency considerations require that optimal labour income taxation is progressive or regressive in a model with skill heterogeneity, endogenous skill acquisition and a production sector with capital-skill complementarity. We find that wage inequality driven by the resource requirements of skill-creation implies progressive labour income taxation in the steady-state as well as along the transition path from the exogenous to optimal policy steady-state. We find that these results are explained by a lower labour supply elasticity for skilled versus unskilled labour which results from the introduction of the skill acquisition technology.

Keywords: optimal progressive taxation; skill premium; allocative efficiency (search for similar items in EconPapers)
Date: 2014-07-07
New Economics Papers: this item is included in nep-dge, nep-pbe and nep-pub
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Working Paper: Optimal progressive taxation in a model with endogenous skill supply (2014)
Working Paper: Optimal progressive taxation in a model with endogenous skill supply (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:585

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