Optimal Labor Income Taxes, Incomplete Markets, and Labor Market Power

Negin Sadat Mousavi
What are the implications of imperfect competition in labor markets for optimal labor income taxes? I study this question in an Aiyagari (1994) incomplete-market economy with idiosyncratic risk, borrowing constraints, and the new feature that jobs are differentiated from workers' perspective and firms have wage-setting power. First, under a restricted class of tax policies, as in Heathcote et al. (2017), the government can choose taxes such that the allocation coincides with that implied by optimal...
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