Download or read book Taxation and Redistribution of Residual Income Inequality written by Mikhail Golosov and published by . This book was released on 2012 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 -- National Bureau of Economic Research web site.