Good Jobs, Bad Jobs and Redistribution

Arbeitspapier

We analyse the question of optimal taxation in a dual economy, when the government 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. We find that whether the government should subsidise or tax investments is crucially dependent on union bargaining strength. If unions are weak, the optimal tax policy implies a combination of investment taxes and progressive income taxation. On the other hand, if unions are strong, we find that the best option for the government is to use investment subsidies in combination with either progressive or proportional taxation, the latter being the optimal policy if the government is not too concerned about inequality and if the cost of income taxation is sufficiently high.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1022

Classification and Topics

• Classification: Wirtschaft
• Subject: rent sharing ; segmented labour markets ; optimal taxation ; redistribution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lommerud, Kjell Erik ; Sandvik, Bjørn ; Staume, Odd Rune
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/76495
• Last update: 10.03.2025, 11:44 AM CET