The Optimal Taxation of Unskilled Labor with Job Search and Social Assistance

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 07.10.2003, 12:15 - 13:30

   

Presentation by 

Jan Boone (Tilburg University)
   

Abstract:

In order to explore the optimal taxation of low-skilled labor, we extend the standard model of optimal non-linear income taxation in the presence of quasi-linear preferences in leisure by allowing for involuntary unemployment, job search and an exogenous welfare benefit. In trading off lowskilled employment against work effort of higher skilled workers, the government balances distortions on the search margin with those on work effort. Higher welfare benefits typically reduce taxes paid by low-skilled workers and raise marginal tax rates throughout the skill distribution.

   
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