Optimal income taxation and social norms in the labor market |
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Authors: | Thomas Aronsson Tomas Sjögren |
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Institution: | (1) Department of Economics, University of Copenhagen, EPRU og CESifo, 1455 Copenhagen, Denmark |
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Abstract: | This paper concerns optimal income taxation in a two-type model extended to allow for social interaction and social norms
in the labor market. One norm refers to “normal behavior” with respect to work hours (the hours of work norm), whereas another
means that “one should earn one’s living by working” (the participation norm). The results show how the hours of work norm
gives rise to a corrective motive for using income taxation. We also show how the interaction between the hours of work norm
and the private incentive to participate in the labor market (which reflects the participation norm) gives rise to an employment
motive for using the income tax. |
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Keywords: | |
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