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Optimal Taxation in Search Equilibrium with Home Production

Per Engström (), Bertil Holmlund and Ann-Sofie Kolm ()

No 2001:19, Working Paper Series from Uppsala University, Department of Economics

Abstract: The paper develops a two-sector general equilibrium search model where "goods" are produced exclusively in the market and "services" are produced both in the market and within the households. We use the model to examine how unemployment and welfare are affected by labor taxes in general and sectoral tax differentiation in particular. We find that a tax cut on services reduces unemployment whereas a tax cut on goods has no effect. A reform involving tax differentiation, with lower taxes on services, is welfare improving. Numerical calibrations of the model suggest that the welfare gains from tax differentiation are large if the government absorbs a substantial fraction of GDP.

Keywords: Taxation; Home production; Search; Unemployment (search for similar items in EconPapers)
JEL-codes: H21 J22 J41 J64 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2001-10-22
New Economics Papers: this item is included in nep-pbe and nep-pke
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Citations: View citations in EconPapers (5) Track citations by RSS feed

Published as the book Optimal Taxation in Search Equilibrium with Home Production, 2005, Oxford Economic Papers.
Published in Oxford Economic Papers, 2005, pages 610-633.

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