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On the Optimal Skill Distribution in a Mirrleesian Economy

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  • Leung, Tin Cheuk
  • Yazici, Hakki

Abstract

People are heterogenous in the skills by which they turn eort into output. A central question in normative public economics is how to redistribute resources from more- to less-skilled individuals eciently. In addition to income taxation, this paper considers another policy tool of redistribution by allowing planner to choose the dispersion of skill distribution given the average skill level of the economy. We nd that, depending on the parameters of the model, either perfectly unequal skill distribution in which one group has a very high skill level and the rest are completely unskilled, or perfectly equal skill distribution in which all agents have the same skill level, is socially optimal, but an interior level of skill inequality is never optimal. We then provide conditions on the parameters under which perfectly equal and perfectly unequal skill distributions are optimal.

Suggested Citation

  • Leung, Tin Cheuk & Yazici, Hakki, 2011. "On the Optimal Skill Distribution in a Mirrleesian Economy," MPRA Paper 32596, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:32596
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    References listed on IDEAS

    as
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    2. Robin Boadway & Pierre Pestieau, 2006. "Tagging and redistributive taxation," Annals of Economics and Statistics, GENES, issue 83-84, pages 123-147.
    3. Helmuth Cremer & Pierre Pestieau & Maria Racionero, 2011. "Unequal wages for equal utilities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 383-398, August.
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    7. Craig Brett & John A. Weymark, 2008. "Public Good Provision And The Comparative Statics Of Optimal Nonlinear Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 255-290, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Skill Distribution; Mirrleesian Taxation; Redistribution; Eciency;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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