Optimal tax policy and wage subsidy in an imperfectly competitive economy

In an imperfectly competitive economy with direct and indirect taxes, the first best wage subsidy overcompensates workers and provides the incentive to misreport working hours. We show that in the second best optimum where the government cannot use a wage subsidy, the optimal policy is to tax labour income at a zero rate. This policy is optimal because it minimizes the incentive to misreport working hours.

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Year of publication:	2010
Authors:	Selim, Sheikh
Publisher:	Cardiff : Cardiff University, Cardiff Business School
Subject:	Optimale Besteuerung \| Lohnsubvention \| Unvollkommener Wettbewerb \| Ramsey-Preis \| Optimal Taxation \| Ramsey Problem \| Wage Subsidy

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Series:	Cardiff Economics Working Papers ; E2010/15
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	641978138 [GVK] hdl:10419/65763 [Handle]
Classification:	D42 - Monopoly ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; H21 - Efficiency; Optimal Taxation ; H30 - Fiscal Policies and Behavior of Economic Agents. General
Source:	EconStor

Persistent link: https://www.econbiz.de/10010288791