Optimal tax policy and wage subsidy in an imperfectly competitive economy

Selim, Sheikh 2010. Optimal tax policy and wage subsidy in an imperfectly competitive economy. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

In an imperfectly competitive economy with direct taxes, the first best wage subsidy overcompensates worker and provides the incentive to misreport working hours. We show that in the second best optimum where the government cannot use a wage subsidy, the optimal policy is to tax labour income at a zero rate. This policy is optimal because it minimizes the incentive to misreport working hours.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	07 Oct 2015 08:20
URI:	https://orca.cardiff.ac.uk/id/eprint/77871

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