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Economic Theory

, Volume 68, Issue 4, pp 845–886 | Cite as

Optimal Mirrleesian taxation in non-competitive labor markets

  • Carlos E. da CostaEmail author
  • Lucas J. Maestri
Research Article

Abstract

This study investigated optimal labor income taxation in non-competitive labor markets. Necessary and sufficient conditions are provided for constrained efficient allocations that are implementable via taxes. Not all allocations that can be implemented in a competitive setting satisfy the necessary conditions for implementation. If an allocation that maximizes a utilitarian objective is implementable then almost all workers face negative marginal tax rates. If the planner’s objective is Rawlsian, implementation is always possible with a well-chosen unemployment benefit financed by taxes on profits.

Keywords

Mirrlees’ problem Non-competitive labor markets Tax implementation 

JEL Classification

D82 H21 

Notes

Acknowledgements

We thank the Editor and two anonymous referees whose suggestions substantially improved the paper. We are also grateful to Luis Braido, Felipe Iachan, participants at the EPGE-FGV theory group, the 2016 SAET and the 2017 SED Meetings, and especially, Leandro Gorno, for their invaluable comments.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.FGV EPGE Brazilian School of Economics and FinanceRio de JaneiroBrazil
  2. 2.FGV EPGE Brazilian School of Economics and FinanceRio de JaneiroBrazil

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