DP3002 Optimal Labour Taxation and Search
|Author(s):||Jan Boone, A Lans Bovenberg|
|Publication Date:||October 2001|
|Keyword(s):||labour market, optimal tax system, search model|
|JEL(s):||H21, H22, H23, J64|
|Programme Areas:||Labour Economics, Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3002|
This Paper explores the optimal role of the tax system in alleviating labour-market imperfections and raising revenue. For this purpose, the standard search model of the labour market is extended by introducing scarce entrepreneurial talent and arbitrage between the supply and demand. We study how these extensions affect the following two major implications of the standard model: (1) only the ad valorem component of the wage tax should be employed to raise revenue; (2) the optimal tax system should not distort labour-market tightness.