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Good Jobs, Bad Jobs and Redistribution *
Author(s) -
Lommerud Kjell Erik,
Sandvik Bjørn,
Straume Odd Rune
Publication year - 2004
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.0347-0520.2004.00384.x
Subject(s) - economics , subsidy , economic rent , redistribution (election) , labour economics , dual economy , income distribution , investment (military) , redistribution of income and wealth , distribution (mathematics) , capital (architecture) , inequality , microeconomics , market economy , mathematical analysis , mathematics , archaeology , public good , politics , political science , law , history
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.