Abstract
A key obstacle to reducing payroll taxes in many industrialized and transition countries is the direct revenue loss to the government that it implies. This paper studies a simple and practical labor tax reform of reducing a payroll tax and increasing a progressive wage tax that keeps the marginal tax wedge unchanged. Such a strategy increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations. Moreover, welfare rises if workers' bargaining power is sufficiently large to exceed a critical value determined by the second-best Hosios condition.
Original language | English |
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Pages (from-to) | 82-104 |
Number of pages | 23 |
Journal | International Tax and Public Finance |
Volume | 16 |
Issue number | 1 |
DOIs | |
Publication status | Published - Feb-2009 |
Keywords
- Labor tax reform
- Equilibrium unemployment
- Invariance of incidence proposition
- Payroll taxes
- Search and matching model
- REAL BUSINESS-CYCLE
- MARKET SEARCH
- TAXATION
- WAGE
- EQUIVALENCE
- BENEFITS
- MODELS
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Labor tax reform, unemployment, and search [Supplementary material]
Heijdra, B. (Contributor) & Ligthart, J. E. (Contributor), DataverseNL, 8-Nov-2013
DOI: 10.34894/dfcog6
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