Scandinavian Working Papers in Economics
Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics
No 2014:8: Optimal Wage Redistribution in the Presence of Adverse Selection in the Labor Market
Spencer Bastani (), Tomer Blumkin () and Luca Micheletto ()
Additional contact information
Spencer Bastani: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Tomer Blumkin: Department of Economics, Ben Gurion University, Israel;
Luca Micheletto: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Abstract: In this paper we allude to a novel role played by the non-linear income tax system in the presence of adverse selection in the labor market due to asymmetric information between workers and firms. We show that an appropriate choice of the tax schedule enables the government to affect the wage distribution by controlling the transmission of information in the labor market. This represents an additional channel through which the government can foster the pursuit of its redistributive goals.
Keywords: adverse selection; labor market; optimal taxation; pooling; redistribution
17 pages, July 23, 2014
Full text files
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