 Taxing the job creators: Efficient taxation with bargaining in hierarchical firmsPost-Print from HAL Abstract: Economists typically view personal income taxes as a tradeoff between distortionary effects on labour supply and desirable effects on the income distribution. However, when wages deviate from marginal product, there is an efficiency rationale for income taxation. In the empirically relevant setting of wage bargaining within hierarchical firms, the efficiency case for taxing the manager at the top of the firm depends on a "job-creation" effect: if wages are too low and increased labour supply allows managers to supervise larger firms and thus collect larger rents, they will work too hard to create jobs at their firm. It may then be efficient to tax the "job creators" because of their job-creation activity. If bargaining compresses the wage distribution for workers, the efficient tax schedule is V-shaped and deviates significantly from zero in a model calibrated to the U.S. income distribution. For a planner with redistributive motives, wage bargaining similarly raises optimal marginal tax rates at the top and bottom of the distribution, while decreasing them in the middle. Keywords: Optimal income taxation; Efficiency; Wage bargaining; Hierarchical firms; Job creators (search for similar items in EconPapers) Published in Labour Economics, 2019, 56, pp.1-25. ⟨10.1016/j.labeco.2018.11.002⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02510497 DOI: 10.1016/j.labeco.2018.11.002 Access Statistics for this paper More papers in Post-Print from HAL |
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