Optimal redistribution and education signaling

Published: 13 March 2024

Author: Spencer Bastani, And Tomer Blumkin, And Luca Micheletto, And

This paper studies optimal taxation of income and education when employers cannot observe workers’ productivity and workers signal their productivity to firms by choosing both quantity and quality of education. We characterize constrained efficient allocations and derive conditions under which there is predistribution, i.e., redistribution through wage compression. Implementation through income and education dependent taxes is discussed, as well as education mandates. A key insight is that achieving predistribution requires complementing the income tax with additional policy instruments that regulate the flow of information in the labor market and prevent high skilled individuals from separating themselves from their low-skilled counterparts.


IFAU-Working paper 2024:8 "Optimal redistribution and education signaling" is written by Spencer Bastani at IFAU, Tomer Blumkin at Ben Gurion University of the Negev and Luca Micheletto at Department of Law, University of Milan. For more information contact Spencer Bastani at spencer.batstani@ifau.uu.se