Optimal Redistributive Taxation in a Search Equilibrium Model

35 Pages Posted: 19 Jan 2005

See all articles by Mathias Hungerbühler

Mathias Hungerbühler

Catholic University of Louvain; Université Paris II - Panthéon-Assas - ERMES

Etienne Lehmann

CREST; Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES); IZA Institute of Labor Economics

Alexis Parmentier

University of Paris 2 Pantheon-Assas - ERMES; University of Paris 1 Pantheon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

Bruno Van der Linden

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales; IZA Institute of Labor Economics

Date Written: January 2005

Abstract

This paper characterizes optimal non-linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labor markets. Redistributive taxation distorts labor demand and wages. Compared to their efficient values, gross wages, unemployment and participation are lower. Average tax rates are increasing. Marginal tax rates are positive, even at the top. Finally, numerical simulations suggest that redistribution is much more important in our setting than in a comparable Mirrlees (1971) setting.

Keywords: optimal income taxation, unemployment, wage bargaining, matching

JEL Classification: D82, H21, H24, J64

Suggested Citation

Hungerbühler, Mathias and Lehmann, Etienne and Parmentier, Alexis and Van der Linden, Bruno, Optimal Redistributive Taxation in a Search Equilibrium Model (January 2005). IZA Discussion Paper No. 1460. Available at SSRN: https://ssrn.com/abstract=650173

Mathias Hungerbühler

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

Université Paris II - Panthéon-Assas - ERMES

12 Place du Panthéon
Paris, Cedex 5, 75005
France

Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Alexis Parmentier

University of Paris 2 Pantheon-Assas - ERMES ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

University of Paris 1 Pantheon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France

Bruno Van der Linden

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales ( email )

3, Place Montesquieu
Louvain-la-Neuve, 1348
Belgium

HOME PAGE: http://perso.uclouvain.be/bruno.vanderlinden/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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