This paper is concerned with the problem of combining a non-linear income tax with an indirect externality correcting tax. The analysis is performed in a model economy with two types of individuals and two types of consumption goods. The government wants to redistribute from the more able...

Incomplete information is a commitment device for time consistency problems. In the context of time consistent labor income taxation privacy can lead to a Pareto superior outcome and increases the effectiveness of public education as a second best policy.