How should a government finance redistribution policies?
Masaya Yasuoka and
Minoru Hayashida
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Minoru Hayashida: Faculty of Economics and Business Administration, Tne University of Kitakyushu
No 136, Discussion Paper Series from School of Economics, Kwansei Gakuin University
Abstract:
In OECD countries, redistribution policies are provided for young and old generations. Taxation of many kinds to finance the redistribution policy exists, just as redistribution policies of many kinds exist. Our paper sets a model with heterogeneous labor productivity for households and sectors of two types: a skilled sector and an unskilled sector. The model elucidates how the government should collect tax revenue for redistribution policies. Results show that the labor income tax can always shrink income inequality. However, the consumption tax increases wage inequality between skilled and unskilled sector. It is not always sufficient to shrink income inequality after redistribution, even if skilled workers increase. A corporate tax shrinks income inequality if intertemporal consumption is substitutive. Results show that the redistribution policy effects depend on how the government collects tax revenue.
Keywords: Income inequality; Redistribution; Taxation (search for similar items in EconPapers)
JEL-codes: E64 H21 H23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-10, Revised 2015-10
New Economics Papers: this item is included in nep-mac and nep-pbe
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http://192.218.163.163/RePEc/pdf/kgdp136.pdf First version, 2015 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:136
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