Optimal capital taxation and labor market search

Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective

“…First and most closely related to our paper, Domeij (2005) also analyses the role of labour market distortions for second-best optimal factor taxes in a dynamic setting with capital accumulation. However, different from our analysis, Domeij considers a set-up where search frictions generate unemployment and the paper shows that a non-zero capital tax is desirable if this 13.…”

A dynamic model of shirking and unemployment: Private saving, public debt, and optimal taxation

“…On the other hand, in search-and-matching models of frictional unemployment, Domeij (2005) and Arseneau and Chugh (2006) find that the capital-income tax should generally differ from zero in steady state. The reason for this finding is the presence of extra constraints that do depend on the capital stock.…”

“…Part of the related literature examines whether the Chamley-Judd result holds with this type of unemployment. In particular, Domeij (2005) and Arseneau and Chugh (2006) find instead that capital income should generally be taxed or subsidized in the long run, to yield labor-market (search-matching) gains that outweigh the costs of intertemporal (savings/investment) distortion induced by the policy. We complement this literature by analyzing optimal taxation in a framework belonging to another major class of unemployment models, based on efficiency-wage considerations.…”

Optimal Capital Taxation in a Neoclassical Growth Model

“…For example, Barro (), Guo and Lansing (), Cassou and Lansing (), and Chen () uncovered positive capital taxes by incorporating distortions such as productive public capital, positive externalities, or imperfectly competitive product market into dynastic models. In a model with labor market frictions, Domeij () found positive capital taxes when the worker of a match was compensated less than his contribution to the formation of the match…”