Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions

Thomas Aronsson () and Tomas Sjögren
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 568, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper concerns optimal taxation and provision of a public good in the context of the mixed tax problem, where the set of tax instruments consists of a nonlinear income tax and linear commodity taxes. The analysis is based on a two-type model with endogenous wage rates. Contrary to previous studies, we allow for imperfect competition in the labor market resulting from the influence of unions over wage formation. The results imply that the employment effects associated with each policy instrument are important to consider. In addition, the effective marginal tax rate of the highest income earners may be either positive or negative. Finally, if concern for employment and/or self-selection make the government choose a lower level of unemployment income than it would otherwise have done, it will to some extent compensate the unemployed by providing more of the public good and via lower commodity taxes.

Keywords: Optimal taxation; provision of public goods; unemployment (search for similar items in EconPapers)
JEL-codes: D60 H21 H40 J64 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2001-09-24
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0568

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