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Optimal human capital policies under the endogenous choice of educational types

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  • Takuya Obara

Abstract

This study examines optimal human capital policies under nonlinear labor and capital income taxes in the presence of consumption value of education in a two‐period setting. We show that when individuals can choose educational types differing by the relative importance of consumption value and production value, education subsidies for low‐type individuals should not equal an efficient level that offsets distortions induced by nonlinear taxes on labor and capital income. Our findings imply that education policy does not restore efficiency, or the Diamond–Mirrlees production efficiency theorem fails. Moreover, capital income taxation is optimal, which means that the Atkinson–Stiglitz theorem breaks down.

Suggested Citation

  • Takuya Obara, 2019. "Optimal human capital policies under the endogenous choice of educational types," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(3), pages 512-536, June.
    • Handle: RePEc:bla:jpbect:v:21:y:2019:i:3:p:512-536
    DOI: 10.1111/jpet.12355
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    Cited by:

    1. Masashi Tanaka, 2020. "Human capital investment, credentialing, and wage differentials," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 992-1016, August.
    2. Parantap Basu & Yoseph Getachew, 2020. "Redistributive innovation policy, inequality, and efficiency," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 532-554, June.

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