Heterogeneity between unemployed and employed individuals matters
for optimal fiscal policy. This paper considers the consequences of
welfare heterogeneity between these two groups for the
determination of optimal capital and labor income taxes in a model
with matching frictions in the labor market. In line with a recent
finding in the literature, we find that the optimal capital tax is
typically non-zero because it is used to indirectly mitigate an
externality along the extensive labor margin that arises from
search and matching frictions. However, the consideration of
heterogeneity makes our result differ in an important way: even for
a well-known parameter configuration (the Hosios condition) that
typically eliminates this externality, we show that the optimal
capital income tax is still non-zero. We also show that labor
adjustment along the intensive margin has an important effect on
efficiency at the extensive margin, and hence on the optimal
capital tax, independent of welfare heterogeneity. Taken together,
our results show that these two empirically-relevant features of
the labor market can have a quantitatively-important effect on the
optimal capital tax.
General
| Imprint: |
Bibliogov
|
| Country of origin: |
United States |
| Release date: |
February 2013 |
| First published: |
February 2013 |
| Authors: |
David M. Arseneau
|
| Dimensions: |
246 x 189 x 2mm (L x W x T) |
| Format: |
Paperback - Trade
|
| Pages: |
40 |
| ISBN-13: |
978-1-288-72778-0 |
| Categories: |
Books >
Social sciences >
Politics & government >
General
|
| LSN: |
1-288-72778-X |
| Barcode: |
9781288727780 |
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