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

18 Pages Posted: 17 Sep 2014

See all articles by Spencer Bastani

Spencer Bastani

IFAU - Institute for Labour Market Policy Evaluation; Linnaeus University - Department of Economics and Statistics; Research Institute of Industrial Economics (IFN)

Tomer Blumkin

Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luca Micheletto

University of Milan

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Date Written: August 20, 2014

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

JEL Classification: D82, H21, J31

Suggested Citation

Bastani, Spencer and Blumkin, Tomer and Micheletto, Luca, Optimal Wage Redistribution in the Presence of Adverse Selection in the Labor Market (August 20, 2014). CESifo Working Paper Series No. 4938, Available at SSRN: https://ssrn.com/abstract=2496879

Spencer Bastani

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Tomer Blumkin (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972 8 647 2268 (Phone)
+972 8 647 2941 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Luca Micheletto

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

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