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Good Jobs, Bad Jobs and Redistribution

  • Kjell Erik Lommerud
  • Bjørn Sandvik
  • Odd Rune Straume

We analyse the question of optimal taxation in a dual economy, when the policy-maker 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. With strong unions and high planner preference for income equality, the optimal policy is a combination of investment subsidies and progressive income taxation. If unions are weaker, the policy-maker may instead choose to tax investment. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .

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Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 106 (2004)
Issue (Month): 4 (December)
Pages: 703-720

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Handle: RePEc:bla:scandj:v:106:y:2004:i:4:p:703-720
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