Optimal wage redistribution in the presence of adverse selection in the labor market

Spencer Bastani; Tomer Blumkin; Luca Micheletto

doi:10.1016/j.jpubeco.2015.08.005

Optimal wage redistribution in the presence of adverse selection in the labor market

Spencer Bastani, Tomer Blumkin, Luca Micheletto

Department of Economics

Ben-Gurion University of the Negev

Research output: Contribution to journal › Article › peer-review

Abstract

In this paper we highlight a novel role played by the non-linear income tax in the presence of adverse selection in the labor market due to asymmetric information between workers and firms. Relying on the Rothschild and Stiglitz equilibrium concept, 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.

Original language	American English
Pages (from-to)	41-57
Number of pages	17
Journal	Journal of Public Economics
Volume	131
DOIs	https://doi.org/10.1016/j.jpubeco.2015.08.005
State	Published - 1 Nov 2015

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth
SDG 10 Reduced Inequalities

Keywords

Adverse selection
Labor market
Optimal taxation
Pooling
Redistribution

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

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10.1016/j.jpubeco.2015.08.005

Cite this

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abstract = "In this paper we highlight a novel role played by the non-linear income tax in the presence of adverse selection in the labor market due to asymmetric information between workers and firms. Relying on the Rothschild and Stiglitz equilibrium concept, 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",

author = "Spencer Bastani and Tomer Blumkin and Luca Micheletto",

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ER -

Optimal wage redistribution in the presence of adverse selection in the labor market

Abstract

UN SDGs

Keywords

All Science Journal Classification (ASJC) codes

Access to Document

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