Optimal skill distribution under convex skill costs

Official URL: http://dx.doi.org/10.1016/j.cbrev.2017.11.003

This paper studies optimal distribution of skills in an optimal income tax framework with convex skill constraints. The problem is cast as a social planning problem where a redistributive planner chooses how to distribute a given amount of aggregate skills across people. We find that optimal skill distribution is either perfectly equal or perfectly unequal, but an interior level of skill inequality is never optimal.