Optimum Taxation and the Allocation of Time.

This paper deals with optimum commodity taxation in Becker's (1965) model of the allocation of time. While the existing public finance literature emphasizes the role of cross elasticities with leisure, I find that the optimal tax system crucially depends on factor shares and elasticities of substitution in household production. In the special case of Leontieff technology, the optimum tax rule depends solely on factor shares and, furthermore, this simple rule maintains the first best allocation. The Becker approach implies, for example, that the social optimum involves a preferential tax treatment of consumer services and possibly even exclusion from the tax base.

On the Optimality of Joint Taxation with Household Production

The existing literature suggests that the concern for economic efficiency calls for individual taxation of married couples with a higher rate on the primary earner. This paper reconsiders the choice of tax unit in the Becker model of household production, which includes previous analyses as special cases. In the general framework, where all utility yielding commodities are produced through a combinatiion of market goods and household time, optimal taxation requires joint taxation of the family. This result assumes that there are no restrictions in the use of commodity taxes. In the presence of such restrictions individual taxation is typically optimal. However, this may call for a lower rate on primary earners, unlike the standard result.optimal taxation, household production, time allocation

The Marginal Cost of Public Funds in OECD Countries. Hours of Work Versus Labor Force Participation

A central finding of the modern labor market literature is that labor supply responses tend to be concentrated along the extensive margin (labor force participation) rather than the intensive margin (hours of work). Yet, the literature on the marginal cost of public funds (MCF) focuses solely on the intensive margin. In this paper we demonstrate that it is important to incorporate extensive labor supply responses into the analysis. Firstly, MCF becomes a function of average taxes, rather than just marginal taxes. Secondly, participation decisions and thus MCF depend on the magnitude of transfers for those out of work. Our calculations for 23 OECD countries reveal that the MCF becomes substantially higher once the participation e.ect is accounted for. This is especially the case for continental European countries where average taxes are high and benefit systems are generous.

Optimal Taxation of Married Couples with Household Production

The literature suggests that the concern for economic efficiency calls for individual-based taxation of married couples with a higher rate on the primary earner. This paper reconsiders the choice of tax unit in the Becker model of household production. Our aim is to study the robustness of previous results to the modelling of time allocation. In addition, we analyze the interaction between the optimal income tax for couples and the chosen commodity tax structure. In the absence of restrictions on the use of commodity taxes, efficient taxation requires joint taxation of the family. In the presence of restricted commodity taxation, the income tax should compensate for the erroneous commodity taxes. In this case, individual taxation is typically optimal, but not necessarily with a higher rate on primary earners as usually suggested.

Labour Tax Reform, The Good Jobs and the Bad Jobs.

We analyse recent proposals to shift the tax burden away from low-paid labour, assuming a dual labour market where the 'good' high-paying jobs are rationed. A shift in the tax burden from low-paid to high-paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is likely to be further distorted. Even if the tax reform raises total employment, economic efficiency may be reduced because labour is reallocated from high-productive to low-productive jobs. Opportunities for on--the--job search have important implications for the policy effects. When these opportunities are small, the tax reform is more likely to raise employment and welfare.

The Role of Taxes as Automatic Destabilizers in New Keynesian Economics

This paper analyses the effects of taxation in New Keynesian economics. The results show that taxes contribute to price and wage stickiness and, moreover, that the resulting fluctuations in welfare are magnified by the presence of taxes. These results are at odds with the old Keynesian idea of automatic stabilizers.New Keynesian economics, taxation, automatic stabilizersJEL Classification: E32, E62

A Revised Efficiency Principle for the Taxation of Couples

We reconsider the result that efficient taxation involves a lower marginal tax on secondary earners than on primary earners. Introducing labor force participation responses into the analysis, we show that a second-earner tax allowance is better than selective marginal tax rates.optimal taxation; married couples; labor supply behavior