DP4115 Good Jobs, Bad Jobs and Redistribution
|Author(s):||Kjell Erik Lommerud, B. Sandvik, Odd Rune Straume|
|Publication Date:||November 2003|
|Keyword(s):||optimal taxation, redistribution, rent sharing, segmented labour markets|
|JEL(s):||H20, J42, J51|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4115|
We analyse the question of optimal taxation in a dual economy, when the policy-maker 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. With strong unions and high planner preference for income equality the optimal policy is a combination of investment subsidies and progressive income taxation. If unions are weaker, the policy-maker may instead choose to tax investment.