Tax Policy in a Model of Search with Training

30 Pages Posted: 20 Feb 2001

See all articles by Ruud A. De Mooij

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Date Written: January 2000

Abstract

This paper develops a model of search on the labour market with training. The model reveals how the tax system can restore the social optimum if the Hosios condition is not satisfied in the private equilibrium. Furthermore, the effects are explored of a second-best reform from average to marginal taxes when a given amount of public revenue has to be raised. We find that (i) a marginal wage tax is less distortionary to raise revenue than is an average tax per job, provided that training is not distorted initially; (ii) this conclusion may reverse in the presence of training distortions; (iii) marginal wage taxes are less distortionary in economies characterized by commitment in wage bargaining, such as the European labour market. Hence, tax reforms that reduce the average tax per job and raise the marginal wage tax, such as an EITC or a negative income tax, are more attractive in Europe than in the US.

JEL Classification: H2, J0

Suggested Citation

De Mooij, Ruud A. and Boone, Jan, Tax Policy in a Model of Search with Training (January 2000). Available at SSRN: https://ssrn.com/abstract=260748

Ruud A. De Mooij (Contact Author)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

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Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Jan Boone

Tilburg University - Center for Economic Research (CentER) ( email )

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Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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