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Redistribution and labor market inclusion

Author

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  • Aronsson, Thomas

    (Department of Economics, Umeå School of Business, Economics and Statistics, Umeå University, Department of Economics, University of Graz)

  • Bastani, Spencer

    (Department of Economics, Uppsala University; Research Institute for Industrial Economics (IFN) Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS))

  • Tayibov, Khayyam

    (Department of Economics and Statistics, School of Business and Economics, Linnaeus University)

Abstract

his paper incorporates labor market inactivity and long-term unemployment into the framework of optimal redistributive taxation. We examine how a combination of education policy, public employment programs, unemployment benefits, and optimal income taxation can effectively address both redistributive goals and the persistent challenges of long-term unemployment. Our analysis shows that the second-best optimal policy typically implies overprovision of education compared to a policy rule that reflects only direct marginal benefits and costs. At the same time, public employment programs and unemployment benefits tend to be underprovided. Through numerical simulations, we illustrate how this policy mix adapts to varying preferences for redistribution, productivity disparities, and the proportion of individuals at risk of long-term unemployment.

Suggested Citation

  • Aronsson, Thomas & Bastani, Spencer & Tayibov, Khayyam, 2025. "Redistribution and labor market inclusion," Working Paper Series 2025:19, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2025_019
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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