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Optimal Wage Redistribution in the Presence of Adverse Selection in the Labor Market

 

Spencer Bastani

Department of Economics, Uppsala University

 

Tomer Blumkin

Department of Economics, Ben Gurion University

 

Luca Micheletto

Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Università Bocconi

 

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.

 

Language: English

 

Keywords: Adverse selection, labor market, optimal taxation, pooling, redistribution.

 

The paper may be downloaded here.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last updated 12 July 2015 - 17:02:19