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

Posted: 4 Sep 2015

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

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

Luca Micheletto

Bocconi University

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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. IZA Discussion Paper No. 9154, Available at SSRN: https://ssrn.com/abstract=2655103

Spencer Bastani (Contact Author)

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
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Stockholm, SE-102 15
Sweden

Tomer Blumkin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

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)

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Munich, DE-81679
Germany

Luca Micheletto

Bocconi University ( email )

Via Sarfatti 25
20136 Milan, MI 20136
Italy

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