Good Jobs, Bad Jobs and Redistribution

Kjell Lommerud (kjell.lommerud@econ.uib.no), Bjørn Sandvik (bjorn.sandvik@econ.uib.no) and Odd Rune Staume

No 1022, CESifo Working Paper Series from CESifo

Abstract: We analyse the question of optimal taxation in a dual economy, when the government is concerned about the distribution of labour income. Income inequality is caused by the presence of sunk capital investments, which creates a ‘good jobs’ sector due to the capture of quasi-rents by trade unions. We find that whether the government should subsidise or tax investments is crucially dependent on union bargaining strength. If unions are weak, the optimal tax policy implies a combination of investment taxes and progressive income taxation. On the other hand, if unions are strong, we find that the best option for the government is to use investment subsidies in combination with either progressive or proportional taxation, the latter being the optimal policy if the government is not too concerned about inequality and if the cost of income taxation is sufficiently high.

Keywords: rent sharing; segmented labour markets; optimal taxation; redistribution (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Good Jobs, Bad Jobs and Redistribution* (2004)
Working Paper: Good Jobs, Bad Jobs and Redistribution (2003)
Working Paper: Good jobs, bad jobs and redistribution (2002)
Working Paper: Good jobs, bad jobs and redistribution (2002)
Working Paper: Good Jobs, Bad Jobs and Redistribution (2001)
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