Self-Selection, Optimal Income Taxation, and Redistribution

J. Atsu Amegashie

The Journal of Economic Education, 2009, vol. 40, issue 1, 55-67

Abstract: The author makes a pedagogical contribution to optimal income taxation. Using a very simple model adapted from George A. Akerlof (1978), he demonstrates a key result in the approach to public economics and welfare economics pioneered by Nobel laureate James Mirrlees. He shows how incomplete information, in addition to the need to preserve incentives, acts as a limit to a government's redistributive power. The model and technical analysis allow easy handling of three self-selection constraints in a manner that is accessible to students with knowledge of only intermediate microeconomics and elementary algebra. The diagrammatic exposition allows him to present interesting and insightful results.

Date: 2009
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DOI: 10.3200/JECE.40.1.055-067

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