July 2020

IZA DP No. 13541: Optimal Tax-Transfer Rules under Equilibrium and New Labour Demand Scenarios

We present an extension of the numerical approach to empirical optimal taxation allowed by a peculiar structure of a microeconometric model of labour supply that includes a representation of the demand side. This makes it possible to identify optimal tax-transfer rules while accounting for equilibrium constraints and to evaluate the effects of exogenous labour demand shocks. We provide illustrative examples using the 2015 EU-SILC data set for Italy.