Essays in dynamic optimal taxation: working experience, unemployment scarring and poverty

This thesis investigates the design of optimal tax systems in dynamic environments. The first essay characterizes the optimal tax system where wages depend on stochastic shocks and work experience. In addition to redistributive and efficiency motives, the taxation of inexperienced workers depends on a second-best requirement that encourages work experience, a social insurance motive and incentive effects. Calibrations using U.S. data yield higher expected optimal marginal income tax rates for experienced workers for most of the inexperienced workers. They confirm that the average marginal income tax rate increases (decreases) with age when shocks and work experience are substitutes (complements). Finally, more variability in experienced workers' earnings prospects leads to increasing tax rates since income taxation acts as a social insurance mechanism. In the second essay, the properties of an optimal tax system are investigated in a dynamic private information economy where labor market frictions create unemployment that destroys workers' human capital. A two-skill type model is considered where wages and employment are endogenous. I find that the optimal tax system distorts the first-period wages of all workers below their efficient levels which leads to more employment. The standard no-distortion-at-the-top result no longer holds due to the combination of private information and the destruction of human capital. I show this result analytically under the Maximin social welfare function and confirm it numerically for a general social welfare function. I also investigate the use of a training program and job creation subsidies. The final essay analyzes the optimal linear tax system when there is a population of individuals whose perceptions of savings are linked to their disposable income and their family background through family cultural transmission. Aside from the standard equity/efficiency trade-off, taxes account for the endogeneity of perceptions through two channels. First, taxing labor decreases income, which decreases the perception of savings through time. Second, taxation on savings corrects for the misperceptions of workers and thus savings and labor decisions. Numerical simulations confirm that behavioral issues push labor income taxes upward to finance saving subsidies. Government transfers to individuals are also decreased to finance those same subsidies.

Livelihood Strategies of Dock Workers in Durban, c. 1900-1959

This dissertation examines the livelihood strategies of African dock workers in Durban, South Africa, between the Anglo-Boer War and the 1959 strikes. These labourers did not conform to common conceptions of radical dock workers or conservative African migrant workers. While Marxist scholars have been correct to stress the working class consciousness of Durban’s dock workers, this consciousness was also more ambiguous. These workers and their leaders displayed a peculiar mix of concern for workers’ issues and defences of the rights and interests of African traders. Many of Durban’s dock workers were not only wage labourers. In fact, only a minority had wages as their only source of income. The Reserve economy played a role in sustaining the consumption levels of their households and, more importantly, more than half of the former dock workers interviewed for this research engaged in some form of commercial enterprise, often based on the pilferage and sale of cargoes. Some also teamed up with township women who sold pilfered goods while the men were at work. This combination of commercial strategies and wage labour has often been overlooked in the literature. By looking at these livelihood strategies, this dissertation considers how rural and urban economies interacted in households’ strategies and reinterprets the reproduction of labour and the household in order to move beyond dichotomies of proletarian versus rural consciousness. The dock workers’ households were neither proletarian households that were forced to reside in the countryside because of apartheid, nor traditional rural homesteads with a missing migrant member. The households were reproduced in three geographically separate spheres of production and consumption, none of which could reproduce the household on its own. These spheres were dependent on each other, but also separate, as physical distance gave the different household members some autonomy. Such multi-nodal households not only bridged the rural and the urban, but equally straddled the formal/informal divide. For many, their employment on the docks made their commercial enterprises possible, which allowed them to retire early from urban wage labour. Consequently, the interests of wage labourers could not be divorced from those of African small-scale entrepreneurs.