Income taxation in a frictional labor market

Shapiro, Joel (2004) Income taxation in a frictional labor market. Journal of Public Economics, 88 (3-4). pp. 465-479.


A new model of wage dispersion is used to examine welfare aspects of income taxation. The model retains the dynamics of wage posting models while exogenizing search effort, therefore allowing more insight into policy issues. The results highlight effects that standard analyses do not take into account. The optimal income tax should depend on an incidence effect between workers and firms. This incidence effect arises from firms trying to lower wages as much as possible. An employment tax proves, in certain cases, to be the best method to encourage labor force participation.

Item Type: Article
Keywords: Wage posting; Optimal income taxation; finance
Subject(s): Finance
Date Deposited: 25 Sep 2015 14:34
Last Modified: 02 Mar 2017 14:17
Funders: not applicable

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