Taxation and redistribution of residual income inequality

Mikhail Golosov, Pricila Maziero, Guido Menzio

Research output: Contribution to journalArticle

11 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1160-1204
Number of pages45
JournalJournal of Political Economy
Volume121
Issue number6
DOIs
StatePublished - Dec 1 2013

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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