Efficiency Properties of Labor Taxation in a Spatial Model of Restricted Labor Mobility

Patrik Guggenberger, Ashok Kaul () and Martin Kolmar ()
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Ashok Kaul: Saarland University

No 287, IZA Discussion Papers from IZA Network @ LISER

Abstract: We examine the efficiency properties of labor taxation. A spatial model of an economy is introduced whose key feature is a new approach to restricted labor mobility. We characterize the efficient allocation of labor and properties of a decentralized equilibrium. An efficient allocation of labor can be compatible with marginal productivity differentials stemming from binding mobility restrictions. We investigate two scenarios of labor taxation (firm-specific taxes and country-specific taxes) and in both setups we give a complete characterization of the cases for which there is scope for redistribution without affecting effciency. Finally, we discuss the applicability of our model in the context of the place of employment and place of residence principle of taxation.

Keywords: Restricted Labor Mobility; Efficient Allocation of Labor; Labor Taxation (search for similar items in EconPapers)
JEL-codes: H7 J61 R5 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2001-04
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Published - published in: Regional Science and Urban Economics, 2002, 32 (4), 447-473

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Journal Article: Efficiency properties of labor taxation in a spatial model of restricted labor mobility (2002)
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