Optimal redistribution with labor supply dependent productivity
International Tax and Public Finance, 2026 (SSCI, Scopus)
- Publication Type: Article / Article
- Publication Date: 2026
- Doi Number: 10.1007/s10797-026-09981-5
- Journal Name: International Tax and Public Finance
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, ABI/INFORM, EconLit, Public Affairs Index, Pharma Collection (ProQuest)
- Keywords: Optimal redistribution, Productivity, Working hours
- Middle East Technical University Affiliated: Yes
Abstract
We study optimal nonlinear income taxation when productivity depends negatively on labor supply (labor-supply-dependent productivity, LSDP). Relative to a benchmark model with fixed productivities, we find that LSDP leads to higher optimal marginal tax rates, especially for higher-income individuals, and greater redistribution. The key mechanism is that, under LSDP, marginal taxation becomes a more effective screening instrument.