Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 1004: Social Exclusion and Optimal Redistribution

Thomas Aronsson (), Spencer Bastani () and Khayyam Tayibov ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Spencer Bastani: Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala and Research Institute for Industrial Economics (IFN), Stockholm, Sweden; Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS), CESIfo, Germany.
Khayyam Tayibov: Department of Economics and Statistics, School of Business and Economics, Linnaeus University, Växjö

Abstract: We integrate social exclusion, operationalized in terms of long-term unemployment, into the theory of optimal redistributive taxation. Our results show how an optimal mix of education policy, public employment, and support to the unemployed, in conjunction with optimal income taxation, contributes to redistribution and reduced long-term unemployment. The second-best optimum most likely implies overprovision of education relative to a policy rule that balances the direct marginal benefit and marginal cost, whereas public employment and unemployment benefits are underprovided. Our calibration shows how the policy mix varies with the government’s preferences for redistribution and the characteristics of those risking long-term unemployment.

Keywords: long-term unemployment; education; optimal income taxation; public sector employment

JEL-codes: D82; H21; J31; J83

69 pages, November 25, 2021

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