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Oxford Economic Papers 2003; 55:121-147
Copyright © 2003 Oxford Universty Press

Article

Tax policy in a matching model with training

Jan Boone and Ruud A. de Mooij

CentER, Tilburg University and CEPR.
Erasmus University Rotterdam, CPB, Tinbergen Institute and CESifo; radm{at}cpb.nl

Correspondence: Correspondence: Department of Economics, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands; j.boone{at}kub.nl

Abstract

This paper develops a model of search on the labour market with training. We explore how the combination of an average job tax and a marginal wage tax can be used to alleviate inefficiencies in job matching and, at the same time, raise a positive revenue with minimal distortions in search and training. We find that (i) a wage tax is less distortionary to raise revenue than is a job tax if training is not distorted initially; (ii) this conclusion may reverse in the presence of training distortions; (iii) marginal wage taxes are less distortionary in economies where bargaining parties can commit to the wage profile.


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