Lommerud, Kjell Erik; Bj¯rn Sandvik; Straume, Odd Rune - Royal Economic Society - RES - 2002
We analyse the question of optimal taxation in a dual economy, when the government 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....