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Good Jobs, Bad Jobs and Redistribution

  • Lommerud, Kjell Erik
  • Sandvik, B.
  • Straume, Odd Rune

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4115.

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Date of creation: Nov 2003
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Handle: RePEc:cpr:ceprdp:4115
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