CRED - University Pantheon-Assas Paris II
12 place du Panthéon
75231 Paris Cedex 05, France
Information about this author at RePEc
NBER Working Papers and Publications
|November 2015||Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach|
with Kory Kroft, Kavan J. Kucko, Johannes F. Schmieder: w21757
This paper reassesses whether the optimal income tax program features an Earned Income Tax Credit (EITC) or a Negative Income Tax (NIT) at the bottom of the income distribution, in the presence of unemployment and wage responses to taxation. The paper makes two key contributions. First, it derives a sufficient statistics optimal tax formula in a general model that incorporates unemployment and endogenous wages. This formula nests a broad variety of structures of the labor market, such as competitive models with fixed or flexible wages and models with matching frictions. Our results show that the sufficient statistics to be estimated are: the macro employment response with respect to taxation and the micro and macro participation responses with respect to taxation. We show that an EITC-like...