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Estimating the welfare cost of taxation in a labour market with Unemployment and non-participation

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  • Vincent (Vincent Peter) Hogan

Abstract

The standard public finance analysis of the welfare cost of labour income taxation is based on the estimation of labour supply functions that treat unemployed individuals as non-participants. This paper applies econometric models of multinomial discrete choice to the labour market, explicitly allowing individuals to be in any of three possible states (employment, unemployment and non-participation). Based on these estimates, we present calculations of the dead-weight loss of taxes, which turn out to be much larger than those suggested by the standard literature.

Suggested Citation

  • Vincent (Vincent Peter) Hogan, 1999. "Estimating the welfare cost of taxation in a labour market with Unemployment and non-participation," Working Papers 199902, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:199902
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    File URL: http://hdl.handle.net/10197/912
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    References listed on IDEAS

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    1. John C. Ham, 1982. "Estimation of a Labour Supply Model with Censoring Due to Unemployment and Underemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(3), pages 335-354.
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    More about this item

    Keywords

    Labor market--Econometric models; Taxation; Unemployment;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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