A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment

Mathias Hungerbühler (), Etienne Lehmann (), Alexis Parmentier () and Bruno Van der Linden

No 2010-13, Working Papers from Center for Research in Economics and Statistics

Abstract: We consider an optimal nonlinear income tax problem in a model with search-matching unemployment and where the negotiated pre-tax wage decreases with mar-ginal tax rate but increases with the level of tax. By omitting labor supply responsesand assuming bene?t for the unemployed and an e¢ cient allocation in the absenceof tax, we characterize the optimal equity-e¢ ciency trade o¤. We show that in labormarket speci?c to each interior level of skill, optimal wages and unemployment ratesare distorted downwards. Moreover, average tax rate are increasing along the in-come distribution and marginal tax rate are positive at the top, even when the skilldistribution is bonded.

Pages: 15
Date: 2010
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Related works:
Working Paper: A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment (2012)
Working Paper: A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment (2010)
Working Paper: A Simple Theory of Optimal Redistributive Taxation with Equilibrium Unemployment (2010)
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