In this paper, we integrate efficiency wage setting with the theory of optimal redistributive income taxation. In doing so, we use a model with two skill types, where efficiency wage setting characterizes the labor market faced by the low-skilled, whereas the high-skilled face a conventional, competitive labor market. We show that the marginal income tax implemented for the high-skilled is negative under plausible assumptions. The marginal income tax facing the low-skilled can be either positive or negative, in general. An increase in unemployment benefits contributes to a relaxation of the binding self-selection constraint, which makes this instrument particularly useful from the perspective of redistribution.
Optimal Redistributive Income Taxation and Efficiency Wages / T. Aronsson, L. Micheletto. - In: SCANDINAVIAN JOURNAL OF ECONOMICS. - ISSN 0347-0520. - (2020). [Epub ahead of print] [10.1111/sjoe.12386]
Optimal Redistributive Income Taxation and Efficiency Wages
L. Micheletto
2020
Abstract
In this paper, we integrate efficiency wage setting with the theory of optimal redistributive income taxation. In doing so, we use a model with two skill types, where efficiency wage setting characterizes the labor market faced by the low-skilled, whereas the high-skilled face a conventional, competitive labor market. We show that the marginal income tax implemented for the high-skilled is negative under plausible assumptions. The marginal income tax facing the low-skilled can be either positive or negative, in general. An increase in unemployment benefits contributes to a relaxation of the binding self-selection constraint, which makes this instrument particularly useful from the perspective of redistribution.File | Dimensione | Formato | |
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