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The Redistribution RecessionHow Labor Market Distortions Contracted the Economy$
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Casey B. Mulligan

Print publication date: 2012

Print ISBN-13: 9780199942213

Published to Oxford Scholarship Online: January 2013

DOI: 10.1093/acprof:oso/9780199942213.001.0001

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Uncertainty, Redistribution, and the Labor Market

Uncertainty, Redistribution, and the Labor Market

(p.253) 10 Uncertainty, Redistribution, and the Labor Market
The Redistribution Recession

Casey B. Mulligan

Oxford University Press

This chapter presents a theory of how the financial panic and other events may have motivated an expansion of the safety net, despite its depressing effect on the labor market. The principal-agent theory of the “equity-efficiency tradeoff” is reviewed and connected with recent economic events. The chapter clarifies that a full cost-benefit analysis of the recession must account for the equity and safety benefits of safety net expansions, for the prevalence of 100 percent marginal tax rates, and for the existence of multiple tax collectors.

Keywords:   equity-efficiency tradeoff, redistribution, labor market

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