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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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    1. Brett, Craig & Weymark, John A., 2003. "Financing education using optimal redistributive taxation," Journal of Public Economics, Elsevier, vol. 87(11), pages 2549-2569, October.
    2. Trostel, P. & Walker, I., 2000. "Education and Work," The Warwick Economics Research Paper Series (TWERPS) 554, University of Warwick, Department of Economics.
    3. Robert A.J. Dur & Coen N. Teulings, 2003. "Are Education Subsidies an Efficient Redistributive Device?," Tinbergen Institute Discussion Papers 03-024/3, Tinbergen Institute, revised 19 Sep 2003.
    4. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers 653, Princeton University, Department of Economics, Industrial Relations Section..
    5. 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.
    6. Feldstein, Martin, 1973. "On the optimal progressivity of the income tax," Journal of Public Economics, Elsevier, vol. 2(4), pages 357-376.
    7. Fair, Ray C, 1971. "The Optimal Distribution of Income," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 551-79, November.
    8. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 297-302, July.
    9. CREMER, Helmuth & PESTIEAU, Pierre & THIBAULT, Emmanuel & VIDAL, Jean-Pierre, . "Optimal tax and education policy when agents differ in altruism and productivity," CORE Discussion Papers RP -1830, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
    11. 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.
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