Efficiency properties of labor taxation in a spatial model of restricted labor mobility

Patrik Guggenberger, Ashok Kaul, Martin Kolmar

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Abstract

We examine the efficiency properties of labor taxation. A spatial model of an economy is introduced whose key feature is a new approach to restricted labor mobility. We characterize the efficient allocation of labor and properties of a decentralized equilibrium. An efficient allocation of labor can be compatible with marginal productivity differentials stemming from binding mobility restrictions. We investigate two scenarios of labor taxation (firm-specific taxes and country-specific taxes) and in both setups we give a complete characterization of the cases for which there is scope for redistribution without affecting efficiency. Finally, we discuss the applicability of our model in the context of the place of employment and place of residence principle of taxation.

Original languageEnglish (US)
Pages (from-to)447-473
Number of pages27
JournalRegional Science and Urban Economics
Volume32
Issue number4
DOIs
Publication statusPublished - Jun 27 2002

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Urban Studies

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