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Optimal labor income taxation with the dividend effect

Author

Listed:
  • Alexey Kushnir

    (Carnegie Mellon University)

  • Robertas Zubrickas

    (University of Bath
    Vilnius University)

Abstract

The unequal distribution of dividends implies the unequal distribution of the profit share of workers’ product of labor. In a Mirrleesian framework when dividends cannot be expropriated, we show that a progressive distribution of dividends creates a positive dividend effect on labor income taxes. Our numerical simulations show the dividend effect to be approximately four percentage points. We analyze the dividend effect under different market structures and its interplay with other forms of taxation.

Suggested Citation

  • Alexey Kushnir & Robertas Zubrickas, 2024. "Optimal labor income taxation with the dividend effect," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1169-1201, December.
    • Handle: RePEc:spr:joecth:v:78:y:2024:i:4:d:10.1007_s00199-024-01578-5
    DOI: 10.1007/s00199-024-01578-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Income tax policy; Inequality; Dividends; Market structure;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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