IDEAS home Printed from https://ideas.repec.org/a/ucp/jpolec/doi10.1086-674135.html
   My bibliography  Save this article

Taxation and Redistribution of Residual Income Inequality

Author

Listed:
  • Mikhail Golosov
  • Pricila Maziero
  • Guido Menzio

Abstract

This paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market. We study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms. The optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax. The positive unemployment benefit serves the purpose of lowering the search risk faced by workers. The increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society.

Suggested Citation

  • Mikhail Golosov & Pricila Maziero & Guido Menzio, 2013. "Taxation and Redistribution of Residual Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1160-1204.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/674135
    DOI: 10.1086/674135
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/674135
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/674135
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/674135?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    2. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
    3. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    4. Robert Shimer & Ivan Werning, 2008. "Liquidity and Insurance for the Unemployed," American Economic Review, American Economic Association, vol. 98(5), pages 1922-1942, December.
    5. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
    6. Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2006. "Optimal Redistributive Taxation in a Search Equilibrium Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 743-767.
    7. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    8. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, March.
    9. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    10. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
    11. repec:pri:indrel:dsp016h440s45s is not listed on IDEAS
    12. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
    13. Manolis Galenianos & Philipp Kircher, 2012. "On The Game‐Theoretic Foundations Of Competitive Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 1-21, February.
    14. Hall, Robert E. & Krueger, Alan B., 2008. "Wage Formation between Newly Hired Workers and Employers: Survey Evidence," IZA Discussion Papers 3775, Institute of Labor Economics (IZA).
    15. repec:bla:econom:v:47:y:1980:i:187:p:351-79 is not listed on IDEAS
    16. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Post-Print hal-03458567, HAL.
    17. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    18. Steeve Mongrain & Joanne Roberts, 2005. "Unemployment Insurance And Experience Rating: Insurance Versus Efficiency ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1303-1319, November.
    19. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    20. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    21. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 163-179.
    22. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    23. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    24. repec:hal:spmain:info:hdl:2441/dc0ckec3fcb29ms985085gkbp is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    2. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    3. Guido Menzio & Irina Telyukova & Ludo Visschers, 2016. "Directed Search over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 38-62, January.
    4. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    5. Leo Kaas & Philipp Kircher, 2015. "Efficient Firm Dynamics in a Frictional Labor Market," American Economic Review, American Economic Association, vol. 105(10), pages 3030-3060, October.
    6. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    7. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    8. Manolis Galenianos & Philipp Kircher & Gábor Virág, 2011. "Market Power And Efficiency In A Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 85-103, February.
    9. Athanasios Geromichalos, 2015. "Unemployment Insurance and Optimal Taxation in a Search Model of the Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 365-380, April.
    10. Menzio, Guido & Telyukova, Irina A. & Visschers, Ludo, 2015. "Directed Search over the Life Cycle," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-48, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Ronald P. Wolthoff, 2010. "Applications and Interviews: A Structural Analysis of Two-Sided Simultaneous Search," Working Papers tecipa-418, University of Toronto, Department of Economics.
    12. Kevin Fawcett & Shouyong Shi, 2018. "Learning, On-the-Job Search and Wage-Tenure Contracts," Working Papers tecipa-597, University of Toronto, Department of Economics.
    13. Mathias Hungerbühler & Etienne Lehmann & Alexis Parmentier & Bruno Van Der Linden, 2006. "Optimal Redistributive Taxation in a Search Equilibrium Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 743-767.
    14. Albert Jan Hummel, 2021. "Unemployment and tax design," Tinbergen Institute Discussion Papers 21-061/VI, Tinbergen Institute.
    15. John Kennes & Daniel le Maire, 2013. "Competing Auctions of Skills," CAM Working Papers 2014_01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    16. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    17. Saara Hämäläinen & Vaiva Petrikaitė, 2024. "Prediction algorithms in matching platforms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(3), pages 979-1020, November.
    18. Serdar Birinci & Kurt Gerrard See, 2018. "How Should Unemployment Insurance vary over the Business Cycle?," 2018 Meeting Papers 69, Society for Economic Dynamics.
    19. Cahuc, Pierre, 2014. "Search, flows, job creations and destructions," Labour Economics, Elsevier, vol. 30(C), pages 22-29.
    20. Athanasios Geromichalos, 2015. "Unemployment Insurance and Optimal Taxation in a Search Model of the Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 365-380, April.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:doi:10.1086/674135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JPE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.