NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxation and Redistribution of Residual Income Inequality

Mikhail Golosov, Pricila Maziero, Guido Menzio

NBER Working Paper No. 18151
Issued in June 2012
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w18151

Published: Mikhail Golosov & Pricila Maziero & Guido Menzio, 2013. "Taxation and Redistribution of Residual Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1160 - 1204. citation courtesy of

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