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Effects of Redistribution Policies - Who Gains and Who Loses?

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  • von Greiff, Camilo

    ()
    (Dept. of Economics, Stockholm University)

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    Abstract

    The paper combines optimal taxation theory with human capital theory and develops a theoretical model with endogenous wages and education decision, in which redistributive policy experiments are carried out and assessed. It is argued that general equilibrium effects of labor income taxation on wages may counteract fiscal redistribution. It is also shown that education subsidies may only benefit skilled workers, suggesting that this subsidy can merely be viewed as a redistribution from unskilled to skilled individuals. Therefore, optimal policy involves a lump-sum education tax in the form of a negative education subsidy.

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    File URL: http://www2.ne.su.se/paper/wp07_12.pdf
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    Bibliographic Info

    Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2007:12.

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    Length: 33 pages
    Date of creation: 27 Jun 2007
    Date of revision:
    Handle: RePEc:hhs:sunrpe:2007_0012

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    Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
    Phone: +46 8 16 20 00
    Fax: +46 8 16 14 25
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    Web page: http://www.ne.su.se/
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    Keywords: Income Redistribution; Education Subsidies;

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    References

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    1. Philip Trostel & Ian Walker, 2006. "Education and Work," Education Economics, Taylor & Francis Journals, vol. 14(4), pages 377-399.
    2. Craig Brett & John A. Weymark, 2000. "Financing Education Using Optimal Redistributive Taxation," Vanderbilt University Department of Economics Working Papers 0038, Vanderbilt University Department of Economics, revised May 2001.
    3. Helmuth Cremer & Pierre Pestieau & Emmanuel Thibault & Jean-Pierre Vidal, 2005. "Optimal Tax and Education Policy When Agents Differ in Altruism and Productivity," Annals of Economics and Finance, Society for AEF, vol. 6(2), pages 209-228, November.
    4. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
    5. William Blankenau, 1999. "A Welfare Analysis of Policy Responses to the Skilled Wage Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 820-849, October.
    6. Robert Dur & Coen Teulings, 2003. "Are Education Subsides an Efficient Redistributive Device?," CEE Discussion Papers 0030, Centre for the Economics of Education, LSE.
    7. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
    8. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
    9. Fair, Ray C, 1971. "The Optimal Distribution of Income," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 551-79, November.
    10. Feldstein, Martin, 1973. "On the optimal progressivity of the income tax," Journal of Public Economics, Elsevier, vol. 2(4), pages 357-376.
    11. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 297-302, July.
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