Nonlinear income taxes and linear commodity taxes are analyzed when people differ with respect to ability, high-skill agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. We characterize pure income tax optima, which may be bunching or...

Using the self-selection framework developed by Stiglitz (1982, 1987) and Stern (1982), the paper reconsiders the issue of the desirability of public provision of private goods in a simple two-class economy where wages are endogenous and the policymaker has access to what is commonly known as...

The analysis of the marginal cost of public funds is extended to the simple two-type, income tax model where individual skill is private information. The marginal cost is related to the prevailing distortions and properties of individual preferences. A division of a tax increase is identified...