Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247895 
Year of Publication: 
2021
Series/Report no.: 
IFN Working Paper No. 1413
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
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.
Subjects: 
Nonlinear taxation
Education
Asymmetric information
Human capital
JEL: 
D82
H21
H52
J31
Document Type: 
Working Paper

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