ABSTRACT
Societies offer a wide variety of pre-tax and post-tax redistribution schemes. This chapter deals with two factors that decide labor supply: who chooses to work—the extensive margin—and how much they will work—the intensive margin. Redistribution policy affects both margins. Aggregate productivity of workers will change as individuals change how much or how intensely they work. The chapter considers a different variant of the model where the wage rate is the same for everybody but people differ with respect to how effective they are with their use of time. It shows that this different type of heterogeneity among individuals leads to a more tractable model that preserves most of the flavors of the original framework. The chapter introduces some complexity to our analysis of policy issues by adding a second dimension to the policy space. It also deals with a political economy model of redistribution based on the seminar paper by Allan H. Meltzer and Scott F. Richards.
