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Optimal Income Taxation and Job Choice

Optimal Income Taxation and Job Choice In this paper, we study optimal income taxation when different job types exist for workers of different skills. Each job type has some feasible range of incomes from which workers choose by varying labor supply. Workers are more productive than others in the jobs that suit them best. The model combines features of the classic optimal tax literature with labor variability along the intensive margin, with the extensive‐margin approach where workers make discrete job choices and/or participation decisions. We find that first‐best maximin utility can be achieved in the second‐best, and marginal tax rates below the top can be negative or zero. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Scandinavian Journal of Economics Wiley

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References (41)

Publisher
Wiley
Copyright
© 2017 The editors of The Scandinavian Journal of Economics.
ISSN
0347-0520
eISSN
1467-9442
DOI
10.1111/sjoe.12199
Publisher site
See Article on Publisher Site

Abstract

In this paper, we study optimal income taxation when different job types exist for workers of different skills. Each job type has some feasible range of incomes from which workers choose by varying labor supply. Workers are more productive than others in the jobs that suit them best. The model combines features of the classic optimal tax literature with labor variability along the intensive margin, with the extensive‐margin approach where workers make discrete job choices and/or participation decisions. We find that first‐best maximin utility can be achieved in the second‐best, and marginal tax rates below the top can be negative or zero.

Journal

The Scandinavian Journal of EconomicsWiley

Published: Oct 1, 2017

Keywords: ; ;

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