TY  - RPRT
        AU  - Lehmann, Etienne
AU  - Parmentier, Alexis
AU  - Linden, Bruno Van der
        TI  - Optimal Income Taxation with Endogenous Participation and Search Unemployment
        PY  - 2008/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 3804
        UR  - https://www.iza.org/index.php/publications/dp3804
        AB  - This paper characterizes the optimal redistributive taxation when individuals are heterogeneous in two exogenous dimensions: their skills and their values of non-market activities. Search-matching frictions on the labor markets create unemployment. Wages, labor demand and participation are endogenous. The government only observes wage levels. Under a Maximin objective, if the elasticity of participation decreases along the distribution of skills, at the optimum, the average tax rate is increasing, marginal tax rates are positive everywhere, while wages, unemployment rates and participation rates are distorted downwards compared to their laissez-faire values. A simulation exercise confirms some of these properties under a general utilitarian objective. Taking account of the wage-cum-labor demand margin deeply changes the equity-efficiency trade-off.
        KW  - random participation
KW  - adverse selection
KW  - labor market frictions
KW  - unemployment
KW  - non-linear taxation
KW  - redistribution
        ER  -