Lower taxes on labor income needed to combat monopoly power effects.
The article explores how to tax labor income optimally in an economy with monopoly power and wage setting. The researchers found that to counteract monopoly distortions, the labor income tax rate should be lower than in a competitive market. They also discovered that the government's tax policy doesn't need to consider profits distribution. Lastly, they showed that for higher monopoly distortions, the optimal tax policy is more effective than the first best policy.