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Wage Formation and Redistribution

Per Engström ()

No 2007:12, Working Paper Series from Uppsala University, Department of Economics

Abstract: The paper extends the basic Stiglitz (1982) model of optimal nonlinear income taxation into a model featuring endogenous unemployment and wages. This means that the government needs to consider the effects on wages and unemployment when designing the optimal tax function. The tax systems’ effects on the wage formation and the unemployment rates result in new intricate redistribution channels. A key result of the paper is that the government may, in order to redistribute, use the marginal tax rates to raise the unemployment rate for the high-skilled and lower it for the low-skilled workers.

Keywords: Optimal Non-Linear Income Taxation; Wage Formation; Tax Progressivity; Unemployment (search for similar items in EconPapers)
JEL-codes: H21 J22 J41 J64 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-02-13
New Economics Papers: this item is included in nep-lab and nep-pbe
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