Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331502 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. 2025:19
Publisher: 
Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala
Abstract: 
This paper incorporates labor market inactivity and long-term unemployment into the framework of optimal redistributive taxation. We examine how a combination of education policy, public employment programs, unemployment benefits, and optimal income taxation can effectively address both redistributive goals and the persistent challenges of long-term unemployment. Our analysis shows that the second-best optimal policy typically implies overprovision of education compared to a policy rule that reflects only direct marginal benefits and costs. At the same time, public employment programs and unemployment benefits tend to be underprovided. Through numerical simulations, we illustrate how this policy mix adapts to varying preferences for redistribution, productivity disparities, and the proportion of individuals at risk of long-term unemployment.
Subjects: 
long-term unemployment
education
optimal income taxation
public sector employment
JEL: 
H21
J24
J45
I21
Document Type: 
Working Paper

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