Year: 2004
Type: article
Abstract: 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.
Institution: University of Bergen
Language: English
Topic: Economic Theory and Policy
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W3023969402