Simple Labor Income Tax Systems with Endogenous Employment Contracts
We use firm's endogenous contractual response to help implement the constrained first best through a simple yet powerful progressive labor income tax system. In our model, workers privately experience both a persistent ability shock and many transient productivity shocks during their life cycles. The optimal tax system is anonymous and time-invariant, but it achieves two goals. First, it directly redistributes the life-cycle income across workers of different ability types. Second, it indirectly induces firms to insure workers against transient shocks with efficiency wage contracts.
Year of publication: |
2014
|
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Authors: | Xing, Yiqing ; Li, Anqi |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
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