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Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach

Kory Kroft (), Kavan Kucko (), Etienne Lehmann () and Johannes Schmieder
Additional contact information
Kory Kroft: University of Toronto
Kavan Kucko: Boston University

No 9719, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We derive a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account.

Keywords: optimal income taxation; labor supply; labor demand (search for similar items in EconPapers)
JEL-codes: H21 J22 J23 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-02
New Economics Papers: this item is included in nep-lma, nep-pbe and nep-pub
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Citations: View citations in EconPapers (6) Track citations by RSS feed

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Related works:
Journal Article: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2020) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2017) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2017) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
Working Paper: Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach (2015) Downloads
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