Taxation and Redistribution of Residual Income Inequality

Mikhail Golosov, Pricila Maziero and Guido Menzio

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market. We study this problem in the context of a directed search model of the labor market populated by homogenous workers and heterogeneous firms. The optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax. The positive unemployment benefit serves the purpose of lowering the search risk faced by workers. The increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society.

Keywords: Unemployment benefit; Income tax; Search frictions; Mechanism design (search for similar items in EconPapers)
JEL-codes: H21 J64 J65 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2012-06-06
New Economics Papers: this item is included in nep-dge, nep-lab, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Taxation and Redistribution of Residual Income Inequality (2013)
Working Paper: Taxation and Redistribution of Residual Income Inequality (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:12-022

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