Taxation and Redistribution of Residual Income Inequality

Mikhail Golosov, Pricila Maziero and Guido Menzio

No 18151, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the optimal redistribution of income inequality in a model with 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 homogeneous workers and heterogeneous firms. The optimal redistribution in this model, which is associated with the constrained efficient allocation, 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.

JEL-codes: H21 J64 J65 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-lab
Note: EFG
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Citations: View citations in EconPapers (6)

Published as Mikhail Golosov & Pricila Maziero & Guido Menzio, 2013. "Taxation and Redistribution of Residual Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1160 - 1204.

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Journal Article: Taxation and Redistribution of Residual Income Inequality (2013)
Working Paper: Taxation and Redistribution of Residual Income Inequality (2012)
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