Citation

Discussion Paper Details

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Title: The Optimal Taxation of Unskilled Labour with Job Search and Social Assistance

Author(s): Jan Boone and A Lans Bovenberg

Publication Date: July 2002

Keyword(s): bunching, labour market search, low-skilled labour, non-linear taxation, participation margin, social assistance and unemployment

Programme Area(s): Public Economics

Abstract: In order to explore the optimal taxation of low-skilled labour, we extend the standard model of optimal non-linear income taxation in the presence of quasi-linear preferences in leisure by allowing for in-voluntary unemployment, job search, an exogenous welfare benefit, and a non-utilitarian social welfare function. In trading of more low-skilled employment against more work effort of higher skilled workers, the government balances distortions on the search margin with those on work effort. Positive marginal tax rates at the bottom may help to encourage job search if this search is taxed on a net basis. Lower welfare benefits and search costs tend to reduce marginal tax rates throughout the skill distribution.

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Bibliographic Reference

Boone, J and Bovenberg, A. 2002. 'The Optimal Taxation of Unskilled Labour with Job Search and Social Assistance'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3446