Optimal Redistribution in the Presence of Signaling

Spencer Bastani, Tomer Blumkin () and Luca Micheletto ()
Additional contact information
Tomer Blumkin: Department of Economics, Ben Gurion University, Postal: CESifo, Germany; IZA
Luca Micheletto: Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University; UCFS; CESifo, Germany

No 1413, Working Paper Series from Research Institute of Industrial Economics

Abstract: We analyze optimal redistribution in the presence of labor market signaling where innate productive ability is not only unobserved by the government, but also by prospective employers. Our model features signaling in both one and two dimensions, where in the latter case firms have an informational advantage vis-a-vis the government. Focusing on signals in the context of educational attainment, we analyze the dual role of income taxation in redistributing income and affecting signaling incentives as well as the role of extended tax systems that combine income taxation with direct taxes on the signals in the form of education taxes/subsidies. We demonstrate how the government can achieve redistribution through wage compression and analyze the conditions under which such redistribution is feasible and socially desirable.

Keywords: Nonlinear taxation; Education; Asymmetric information; Human capital (search for similar items in EconPapers)
JEL-codes: D82 H21 H52 J31 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-11-01
New Economics Papers: this item is included in nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Optimal Redistribution in the Presence of Signaling (2021)
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