Optimal Redistributive Taxation in a Search Equilibrium Model

Hungerbühler, Mathias; Lehmann, Étienne; Parmentier, Alexis; Linden, Bruno Van der

doi:10.1111/j.1467-937x.2006.00394.x

Cited by 63 publications

(63 citation statements)

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“…Following Hungerbuhler et al (2006), we capture labor market frictions (LMF hereafter) in a static setting. Unlike Hungerbuhler et al (2006), our framework incorporates both the intensive (hours worked) and the extensive margin (the number of employees) of labor.…”

Section: Main Assumptionsmentioning

confidence: 99%

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Fiscal Devaluation and Structural Gaps

2014

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1 RésuméCet article détermine le régime fiscal optimal dans une économie ouverte caractérisée par des inefficiences structurelles liées au marché du travail et à la taille de l'Etat. De façon analytique, nous montrons d'abord que la réévaluation fiscale permet d'exploiter l'externalité des termes de l'échange et d'atténuer l'impact d'une dépense publique excessive. Toutefois, si les rigidités sur le marché du travail sont suffisamment grandes, la dévaluation fiscale peut être préférable. Deuxièmement, nous fournissons une évaluation quantitative d'une réforme adoptant cette fiscalité optimale en utilisant la France comme économie de référence. Nos résultats montrent que la France bénéficierait plus d'une dé-valuation fiscale qu'une économie où le marché du travail est plus flexible, comme les États-Unis. Nous montrons également que les gains de bien-être de la réforme fiscale dépendent essentiellement de la capacité du gouvernement à revenir à sa taille optimale.Mots clés: Taxes sur la consommation, cotisations sociales, allocation de Ramsey, appariement sur le marché du travail, économie ouverte, dépenses publiques.Codes JEL: E27, E62, H21, J38 AbstractThe paper characterizes the optimal tax scheme in an open economy with structural inefficiencies on the labor market and on government size. On analytical grounds first, we show that the economy can use fiscal revaluation to exploit the terms of trade externality and to dampen the impact of an excessive public spending. However, if real labor market rigidities are large enough, fiscal devaluation may be desirable. Second, we provide a quantitative assessment of the optimal tax reform using France as the benchmark economy. Our results show that France would benefit more from fiscal devaluation than a economy where the labor market is more flexible, as the US. We also show that the welfare gains from the optimal tax reform crucially depend on the ability of the government to target its optimal size.Keywords: consumption tax, payroll tax, Ramsey allocation, labor market search, open economy, public spending. Non-technical summaryFiscal devaluation has been received a lot of attention in the recent years. This policy consists to use "unilateral fiscal policy to generate the same real outcomes as those following a nominal exchange rate devaluation, while keeping the nominal exchange rate fixed". In accordance with this nominal approach, the New-Keynesian economists study policies which can affect real terms of trade in the short run. A particular combination of an increase in value-added taxes along with employment subsidy allows decentralized markets to achieve this objective. As such, fiscal devaluation has been implemented in many European countries in the recent years (Denmark (1988), Sweden (1993), Germany (2006) or France (2012)). This literature only focuses on short-run performances of the tax reform in reducing the "Okun gaps". This paper supplements these studies by emphasizing the medium-run effects of fiscal devaluation in economies featuring real rigidit...

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Section: Main Assumptionsmentioning

confidence: 99%

“…Unlike Hungerbuhler et al (2006), our framework incorporates both the intensive (hours worked) and the extensive margin (the number of employees) of labor. Modeling both margins indeed turns out to have important implications in the design of the Ramsey tax scheme.…”

Section: Main Assumptionsmentioning

confidence: 99%

Fiscal Devaluation and Structural Gaps

2014

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“…Few papers have addressed redistributive optimal tax policy in models with imperfect labor markets. Hungerbuhler et al (2006) analyze a search model with heterogeneous productivity, and Stantcheva (2011) considers contracting models where firms cannot observe perfectly the productivity of their employees. 59 In their model (and in contrast to the simple model we use here), when rent-seekers "steal" only from other rent-seekers, it is not optimal to impose high top tax rates because low top tax rates stimulate rent-seeking efforts, thereby congesting the rent-seeking sector and discouraging further entry.…”

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confidence: 99%

Optimal Labor Income Taxation

Piketty¹,

Saez²

2012

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This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consider optimal nonlinear income taxation with particular emphasis on the optimal top tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including tax avoidance and income shifting, international migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society's value for redistribution, behavioral elasticities capturing the efficiency costs of taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from theory, and in particular the limitations of both theory and empirical work in settling the political debate on optimal labor income taxation and transfers.

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“…In those models, the complexity of the jobs (or their specialization when workers are horizontally differentiated as in Marimon and Zilibotti (1999) or Gavrel and Lebon (2008)) is exogenous. In addition, contrary to ours, models with vertical differentiation often assume that the market is segmented in as many sub-markets as skill levels, see Mortensen and Pissarides (1999) or the literature about optimal taxation with equilibrium unemployment (Hungerbühler et al, 2006). On the other hand, in Acemoglu (1999), Shimer and Smith (2000), Albrecht and Vroman (2002), Gautier (2002) and Blázquez and Jansen (2008), the labor market is not segmented and heterogeneous workers form a common pool of applicants; but, contrary to our setting, firms' search is random.…”

Section: Contents Lists Available At Sciencedirectmentioning

confidence: 75%

Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements

Gavrel

2009

Labour Economics

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Optimal Redistributive Taxation in a Search Equilibrium Model

Cited by 63 publications

References 40 publications

Fiscal Devaluation and Structural Gaps

Fiscal Devaluation and Structural Gaps

Optimal Labor Income Taxation

Technical skill bias as a response of firms to unemployment: A matching model with applicant ranking and endogenous skill requirements

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