A note on income taxation and occupational choice

Eytan Sheshinski*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This note shows that, in case of suboptimal occupational choice, labor taxation can generate a relevant deadweight loss. With varying aptitudes in different occupations, individuals typically maximize income by specializing in one occupation which promises the highest income, but various labor market imperfections and uncertainties imply that the choice of the best occupation is accomplished with partial success. We use the multinomial Logit approach to evaluate the magnitude of the distortions due to errors in occupational choice caused by income taxation. Under plausible parameterization, we snow that the deadweight loss can be as high as a third of total income.

Original languageEnglish
Pages (from-to)20-23
Number of pages4
JournalResearch in Economics
Volume70
Issue number1
DOIs
StatePublished - 1 Mar 2016

Bibliographical note

Publisher Copyright:
© 2015 University of Venice.

Keywords

  • Distribution of aptitudes
  • Logit model
  • Size distribution of income

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