Taxation and Redistribution of Residual Income Inequality

46 Pages Posted: 16 Jun 2012 Last revised: 5 Feb 2023

See all articles by Mikhail Golosov

Mikhail Golosov

Princeton University - Department of Economics

Pricila Maziero

Stern Economics - NYU

Guido Menzio

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: June 2012

Abstract

This paper studies the optimal redistribution of income inequality in a model with 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 in this model, which is associated with the constrained efficient allocation, 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

Golosov, Mikhail and Maziero, Pricila and Menzio, Guido, Taxation and Redistribution of Residual Income Inequality (June 2012). NBER Working Paper No. w18151, Available at SSRN: https://ssrn.com/abstract=2085138

Mikhail Golosov (Contact Author)

Princeton University - Department of Economics ( email )

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Pricila Maziero

Stern Economics - NYU ( email )

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Guido Menzio

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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United States
215-898-5170 (Phone)

National Bureau of Economic Research (NBER) ( email )

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