The Optimal Taxation of Unskilled Labor with Job Search and Social Assistance

Jan Boone and Lans Bovenberg

No 9785, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In order to explore the optimal taxation of low-skilled labor, we extend the standard model of optimal non-linear income taxation in the presence of quasi-linear preferences in leisure by allowing for involuntary unemployment, job search and an exogenous welfare benefit. In trading off low-skilled employment against work effort of higher skilled workers, the government balances distortions on the search margin with those on work effort. Higher welfare benefits typically reduce taxes paid by low-skilled workers and raise marginal tax rates throughout the skill distribution.

JEL-codes: H2 J2 (search for similar items in EconPapers)
Date: 2003-06
Note: LS PE
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Citations: View citations in EconPapers (1)

Published as Boone, Jan and Lans Bovenberg. "The Optimal Taxation Of Unskilled Labor With Job Search And Social Assistance," Journal of Public Economics, 2004, v88(11,Sep), 2227-2258.

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Journal Article: The optimal taxation of unskilled labor with job search and social assistance (2004)
Working Paper: The Optimal Taxation of Unskilled Labour with Job Search and Social Assistance (2002)
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