Arbeitspapier
Optimal taxation and labour wedge in models with equilibrium unemployment
In this paper, we develop heterogeneous agent models with equilibrium unemployment to study the optimal taxation and labour wedge. We find that the the presence of profits plays an important role in the determination of both optimal tax policy and labour wedge. Judd-Chamley optimal zero capital tax result can still hold in the model without profits. The optimal labour wedge is zero in the long run. This results in welfare gains of all agents and there is no conflict of interests between agents. But the Benthamite government chooses to subsidise the capital income in the long run in the model with profits due to the presence of productive public investment. The resulting labour wedge is non-zero which generates welfare losses of workers despite welfare gains of capitalists. The government also faces a trade-off between efficiency and equity in this model.
- Language
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Englisch
- Bibliographic citation
-
Series: School of Economics Discussion Papers ; No. 1407
- Classification
-
Wirtschaft
General Aggregative Models: Neoclassical
Investment; Capital; Intangible Capital; Capacity
Fiscal Policy
- Subject
-
household heterogeneity
equilibrium unemployment
optimal taxation
labour wedge
- Event
-
Geistige Schöpfung
- (who)
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Jiang, Wei
- Event
-
Veröffentlichung
- (who)
-
University of Kent, School of Economics
- (where)
-
Canterbury
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Jiang, Wei
- University of Kent, School of Economics
Time of origin
- 2014
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