This paper derives optimal income tax and human capital policies in a dynamic life cycle model of labor supply and risky human capital formation. The wage is a function of both stochastic, persistent, and exogenous "ability" and endogenous human capital. Human capital is acquired throughout life...

This paper studies optimal linear and nonlinear redistributive income taxation when there is adverse selection in the labor market. Unlike in standard taxation models, firms do not know workers' abilities and competitively screen them through nonlinear compensation contracts. The equilibrium...