Optimal Income Taxation in an Equilibrium Unemployment Model : Mirrless meets Pisarrides

Hungerbuelher, Mathias;Lehmann, Etienne;Parmentier, Alexis;Van der Linden, Bruno
(2003) , 32 pages

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Authors
  • Hungerbuelher, Mathias
    Author
  • Lehmann, Etienne
    Author
  • Parmentier, Alexis
    Author
  • Van der Linden, Bruno
    Author
Abstract
This paper characterize optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous unvoluntary unemployment due to frictions in labor markets. Redistributive taxations distorts labor demand and wages. Compared to the laissez-faire, gross wages, unemployment and participation are lower. Averages taxes rates are ncreasing. Marginal taxes rates are positive, even at the top. Finally, numerical simulations suggest that redistribution is more important in our setting than in a comparable Mirrlees (1971) setting.
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Hungerbuelher, M., Lehmann, E., Parmentier, A., & Van der Linden, B. (2003). Optimal Income Taxation in an Equilibrium Unemployment Model : Mirrless meets Pisarrides (ECON Working Papers 2003/92). https://hdl.handle.net/2078.5/33606