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How should a government finance redistribution policies?

Author

Listed:
  • Masaya Yasuoka

    (School of Economics, Kwansei Gakuin University)

  • Minoru Hayashida

    (Faculty of Economics and Business Administration, Tne University of Kitakyushu)

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.

Suggested Citation

  • Masaya Yasuoka & Minoru Hayashida, 2015. "How should a government finance redistribution policies?," Discussion Paper Series 136, School of Economics, Kwansei Gakuin University, revised Oct 2015.
    • Handle: RePEc:kgu:wpaper:136
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    References listed on IDEAS

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    More about this item

    Keywords

    Income inequality; Redistribution; Taxation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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