Notes on Optimal Wage Taxation and Uncertainty

26 Pages Posted: 8 Feb 2001 Last revised: 26 Jul 2010

See all articles by Jonathan Eaton

Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 1979

Abstract

Most contributions to optimal tax theory have assumed that all prices, including that of leisure, are known with certainty. The purpose of this paper is to analyze optimal taxation when workers have imperfect information about their wages at the time they choose their labor supplies. Both efficiency and redistributive aspects of the problem are considered. The paper begins with a discussion of the positive theory of wage taxation and labor supply under uncertainty. This is followed by a discussion of optimal taxation when individuals are identical, but their wages are stochastic. Finally, the case of simultaneous uncertainty and inequality is discussed. In this part of the paper it is assumed that the government's objective is to maximize a utilitarian social welfare function.

Suggested Citation

Eaton, Jonathan and Rosen, Harvey S., Notes on Optimal Wage Taxation and Uncertainty (August 1979). NBER Working Paper No. w0388. Available at SSRN: https://ssrn.com/abstract=228065

Jonathan Eaton (Contact Author)

Leonard N. Stern School of Business - Department of Economics ( email )

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Harvey S. Rosen

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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