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On the Optimal Skill Distribution in a Mirrleesian Economy

Leung, Tin Cheuk and Yazici, Hakki (2011): On the Optimal Skill Distribution in a Mirrleesian Economy.

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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.

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