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Taxation and Redistribution of Residual Income Inequality

Author

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  • Mikhail Golosov

    () (Department of Economics, Princeton University and NBER)

  • Pricila Maziero

    () (Department of Finance, Wharton School, University of Pennsylvania)

  • Guido Menzio

    () (Department of Economics, University of Pennsylvania)

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 homogenous 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, 2012. "Taxation and Redistribution of Residual Income Inequality," PIER Working Paper Archive 12-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:12-022
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    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.
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    Cited by:

    1. 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.
    2. Kory Kroft & Kucko Kavan & Etienne Lehmann & Johannes Schmieder, 2015. "Optimal Income Taxation with Unemployment and Wage Responses: A Sufficient Statistics Approach," Working Papers hal-01292126, HAL.
    3. Tao, Yong & Wu, Xiangjun & Li, Changshuai, 2017. "Rawls' fairness, income distribution and alarming level of Gini coefficient," Economics Discussion Papers 2017-67, Kiel Institute for the World Economy (IfW).
    4. Yan Ji, 2017. "Job Search under Debt: Aggregate Implications of Student Loans," 2017 Meeting Papers 222, Society for Economic Dynamics.
    5. repec:spr:jeicoo:v:14:y:2019:i:2:d:10.1007_s11403-017-0211-6 is not listed on IDEAS
    6. Jian Xin Heng & Benoit Julien & John Kennes & Ian King, 2016. "Job Qualities, Search Unemployment, and Public Policy," Discussion Papers Series 570, School of Economics, University of Queensland, Australia.
    7. repec:eee:jetheo:v:183:y:2019:i:c:p:568-593 is not listed on IDEAS
    8. Casey Rothschild & Florian Scheuer, 2016. "Optimal Taxation with Rent-Seeking," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1225-1262.
    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. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.
    11. Jean-Baptiste Michau, 2013. "On the Provision of Insurance Against Search-Induced Wage Fluctuations," Working Papers hal-00850547, HAL.
    12. Jan Eeckhout, 2013. "Unemployment Risk and the Distribution of Assets," 2013 Meeting Papers 337, Society for Economic Dynamics.
    13. repec:eee:mateco:v:79:y:2018:i:c:p:95-105 is not listed on IDEAS
    14. Marco Brianti & Tzuo Hann Law, 2018. "Financial Frictions and Un(der)employment Insurance," 2018 Meeting Papers 1303, Society for Economic Dynamics.
    15. Athanasios Geromichalos, 2012. "Unemployment Insurance and Optimal Taxation in Search Models of the Labor Market," Working Papers 174, University of California, Davis, Department of Economics.
    16. Yong Tao & Xiangjun Wu & Tao Zhou & Weibo Yan & Yanyuxiang Huang & Han Yu & Benedict Mondal & Victor M. Yakovenko, 2019. "Exponential structure of income inequality: evidence from 67 countries," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(2), pages 345-376, June.
    17. Athanasios Geromichalos, 2012. "Unemployment Insurance and Optimal Taxation in Search Models of the Labor Market," Working Papers 194, University of California, Davis, Department of Economics.
    18. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    19. Athanasios Geromichalos, 2012. "Unemployment Insurance and Optimal Taxation in Search Models of the Labor Market," Working Papers 1219, University of California, Davis, Department of Economics.
    20. Pei, Yun & Xie, Zoe, 2016. "A Quantitative Theory of Time-Consistent Unemployment Insurance," FRB Atlanta Working Paper 2016-11, Federal Reserve Bank of Atlanta, revised 01 Dec 2017.
    21. Pei, Yun & Xie, Zoe, 2016. "Government Commitment and Unemployment Insurance Over the Business Cycle," MPRA Paper 76563, University Library of Munich, Germany.
    22. Casey Rothschild & Florian Scheuer, 2016. "Optimal Taxation with Rent-Seeking," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1225-1262.
    23. Jesper Bagger & Espen Moen & Rune Vejlin, 2018. "Optimal Taxation with On-the-Job Search," 2018 Meeting Papers 805, Society for Economic Dynamics.
    24. Javier Fernandez-Blanco, 2017. "Unemployment Risks and Intra-Household Insurance," 2017 Meeting Papers 478, Society for Economic Dynamics.

    More about this item

    Keywords

    Unemployment benefit; Income tax; Search frictions; Mechanism design;

    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

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