André Sztutman

How are optimal taxes affected by reputation building and imperfect information in labor markets? In this paper, I build a model of labor markets with incomplete and asymmetric information where job histories play a crucial role in transmitting information about workers’ productivity, which allows us to better understand the efficiency and distributive consequences of imperfect monitoring and screening in labor markets, and the tradeoffs the government faces when setting taxes. Optimal taxes are described by generalized versions of standard redistributive and corrective taxation formulas, which depend crucially on labor wedges: the ratios of the marginal contribution to output over the increases in lifetime earnings that result from supplying one extra unit of labor at each period. Combining estimates from the literature and new estimates using data from the Health and Retirement Study, I find that, the corrective component of taxes is large, especially at the top of the income distribution.

Suppose an income tax schedule is (constrained) Pareto efficient. We show it may still be suboptimal for utilitarian welfare under all cardinalizations of utilities that admit an upper bound on the curvature of household utility with respect to consumption. Taxes are optimal for some such cardinalization if and only if tax revenues are decreasing and concave with respect to a class of narrowly targeted reforms. We reformulate this condition as a test on sufficient statistics. The test
fails whenever elasticities of taxable income vary enough within some income level. We evaluate our test empirically and find welfare-improving reforms exist.

How does technological change affect the fiscal cost of redistributing income through taxes? We address this question in light of the well-documented heterogeneity in elasticities of labor supply and taxable income. When
the same households who are responsive to wage changes are also responsive to tax changes, a uniform increase in productivity disproportionately shifts more tax-elastic types to higher incomes. As a result, it raises the cost of redistributing income away from the top. We provide novel evidence showing that this sorting mechanism is quantitatively powerful and, in recent decades, outweighs a countervailing mechanism resulting from higher income inequality.

Leveraging data from a major lending provider for SMEs in China and an interest rate discount policy, we analyze the presence of selection in lending markets and how it interacts with market power. Our findings reveal a decrease in the average probability of loan repayment following interest rate reductions, indicating advantageous selection. Alternative explanations, such as moral hazard, observable heterogeneity, and dynamic portfolio optimization, cannot fully account for that pattern. Building on our estimated demand elasticities and selection effects, we assess the welfare implications of information-sharing and pro-competition policies, finding that among a restricted simple set of policies, ensuring competition and mandating information to be shared across financial providers results in the largest welfare gains.