||The Impact of Taxes and Transfers on Skill Premium
Takahashi, ShuheiYamada, Ken
31 , 2017-08 , Institute of Economic Research, Kyoto University
The level of wage inequality has varied across advanced industrial countries. One of the main reasons has been a significant difference in the skill wage premium. This study analyzes the impact of taxes and transfers on the skill wage premium and social welfare in the context of a heterogeneous-agents incomplete-markets model, in which the population consists of skilled workers and unskilled workers, and the production technology exhibits capital-skill complementarity. The analysis indicates that a significant fraction of the difference in the skill wage premium between the United States and Japan can be accounted for by differences in the tax system.