THE MIRRLEES APPROACH TO THE THEORY OF ECONOMIC-POLICY

This paper summarizes James Mirrlees' key contribution to the theory o f tax policy. It argues that the Mirrlees approach of viewing governme nt as being constrained by imperfect information has changed profoundl y how we look at the normative public policy. In this view, asymmetric information provides the limit to redistribution by restricting the e fficiency-equity trade-off. It leads to consideration of other policy instruments for relaxing incentive constraints and improving the effic iency of redistributive policies. Some of these instruments include qu antity controls, in-kind transfers and public provision or mandating o f insurance, things we observe in practice.