What is the cost of informality? On the one hand, an informal sector creates a restriction on the set of policies that can be implemented. On the other hand, its existence offers an alternative for those for whom the benefits of formal relations do not compensate for the costs. Based on...

We derive optimal labor income tax schedules for married agents, taking the distinction between interpersonal and interhousehold inequality seriously. Each household consists of two workers with different productivity levels and unequal access to the family’s economic resources. We handle the...