OPTIMAL REDISTRIBUTION AND EDUCATION SIGNALING

Spencer Bastani, Tomer Blumkin and Luca Micheletto

International Economic Review, 2025, vol. 66, issue 3, 1239-1265

Abstract: We develop a theory of optimal income and education taxation under asymmetric information between firms and workers. Our results show that a max–min optimal tax code can achieve predistribution by pooling wages across ability levels, conditional on income. We identify conditions under which the optimal solution leads to pooling or separating equilibria, highlighting bidirectional incentive constraints. Implementation requires nonlinear income taxes coupled with education subsidies or mandates. Predistribution is only feasible when income taxes are complemented by policies that restrict signaling opportunities. Our framework provides new insights into reducing wage inequality through optimal tax policy and labor market information management.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/iere.12756

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:66:y:2025:i:3:p:1239-1265

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Michael O'Riordan and Dirk Krueger

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().