Program > Papers by author > Lehmann Etienne

Monday 12
B6 - Labor market, Unemployment
Chair: Etienne Lehmann
› 14:55 - 15:20 (25min)
› Room 521 - L. Jouvet
Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach
Kory Kroft  1@  , Kavan Kucko  2@  , Etienne Lehmann  3@  , Johannes Schmieder  2@  
1 : Department of Economics, University of Toronto
2 : Department of economics - Boston University
3 : Centre de Recherches Economie et Droit - Université Pantheon-Assas Paris II  (CRED)  -  Website
CRED
12 place du Pantheon, 75231 Paris Cedex 05 -  France

We derive a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages, to study the shape of the tax and transfer system at the bottom of the distribution. The sufficient statistics are the macro employment response to taxation and the micro and macro participation responses. We estimate these statistics using policy variation from the U.S. tax and transfer system. Our results suggest that the optimal tax more closely resembles a Negative Income Tax than an Earned Income Tax Credit relative to the case where unemployment and wage responses are not taken into account.



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