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

Number: 77
Year: 2015
Author(s): Spencer Bastani, Tomer Blumkin, Luca Micheletto
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.

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


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


The paper may be downloaded here.


Keywords: adverse selection,labor market,optimal taxation,pooling,redistribution