IDEAS home Printed from https://ideas.repec.org/p/cor/louvrp/1830.html
   My bibliography  Save this paper

Optimal tax and education policy when agents differ in altruism and productivity

Author

Listed:
  • CREMER, Helmuth
  • PESTIEAU, Pierre
  • THIBAULT, Emmanuel
  • VIDAL, Jean-Pierre

Abstract

This paper studies the design of education policies in a setting of overlapping generations with heterogeneous individuals. Individuals differ in productivity (high and low earning ability) and in altruism (altruists and non altruists). Only altruistic parents invest in education out of some joy of giving. Their investment determines the probability that a child has high ability. Education policies consist of a subsidy on private educational investments and of public education. We show that when an income tax is available, the subsidy on education should not depend on redistribution. Instead, it is determined by the following terms. First, a Pigouvian term which arises because under warm glow altruism parents¡¯ utility does not properly account for the impact of education on future generations. The second term captures a ¡°merit good¡± effect, which arises when the warm glow term is not fully included in social welfare (possibility of laundering out). Third, depending on the information structure there may be a substitution term that arises because the demand for second period consumption and for education transfer are interdependent. The first two terms are of opposite sign and the optimal subsidy may be positive or negative. Finally, we derive conditions under which public education is desirable. Public education affects also the probability of being highly productive for the altruists and the non altruists. Its desirability will in part depend on its substitutability with private educational investment.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • CREMER, Helmuth & PESTIEAU, Pierre & THIBAULT, Emmanuel & VIDAL, Jean-Pierre, 2005. "Optimal tax and education policy when agents differ in altruism and productivity," LIDAM Reprints CORE 1830, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1830
    Note: In : Annals of Economics and Finance, 6, 209-228, 2005
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October.
    2. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    3. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    4. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    5. Raquel Fernandez & Richard Rogerson, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 135-164.
    6. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. von Greiff, Camilo, 2007. "Effects of Redistribution Policies - Who Gains and Who Loses?," Research Papers in Economics 2007:12, Stockholm University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brotherhood, Luiz & Delalibera, Bruno R., 2020. "Minding the gap between schools and universities," Journal of Economic Dynamics and Control, Elsevier, vol. 120(C).
    2. Helmuth Cremer & Pierre Pestieau, 2006. "Intergenerational Transfer of Human Capital and Optimal Education Policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 529-545, October.
    3. John Hassler & José Rodríguez Mora & Joseph Zeira, 2007. "Inequality and mobility," Journal of Economic Growth, Springer, vol. 12(3), pages 235-259, September.
    4. Glomm, Gerhard & Kaganovich, Michael, 2008. "Social security, public education and the growth-inequality relationship," European Economic Review, Elsevier, vol. 52(6), pages 1009-1034, August.
    5. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    6. Katsuya Takii & Ryuichi Tanaka, 2013. "On the role of job assignment in a comparison of education systems," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 180-207, February.
    7. Chengze Simon Fan, 2003. "Human Capital, Study Effort, and Persistent Income Inequality," Review of Development Economics, Wiley Blackwell, vol. 7(2), pages 311-326, May.
    8. Getachew, Yoseph Yilma, 2010. "Public capital and distributional dynamics in a two-sector growth model," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 606-616, June.
    9. 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.
    10. Bas Jacobs & Hongyan Yang, 2013. "Second-Best Income Taxation with Endogenous Human Capital and Borrowing Constraints," CESifo Working Paper Series 4155, CESifo.
    11. Camargo, Braz & Stein, Guilherme, 2022. "Credit constraints and human capital policies," Journal of Public Economics, Elsevier, vol. 208(C).
    12. Mark Gradstein & Moshe Justman, 1996. "The political economy of mixed public and private schooling: A dynamic analysis," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 297-310, July.
    13. Getachew, Yoseph Yilma, 2012. "Distributional effects of public policy choices," Economics Letters, Elsevier, vol. 115(1), pages 56-59.
    14. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers.
    15. Gradstein, Mark & Justman, Moshe, 1997. "Democratic Choice of an Education System: Implications for Growth and Income Distribution," Journal of Economic Growth, Springer, vol. 2(2), pages 169-183, July.
    16. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
    17. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
    18. Iyigun, Murat F, 1999. "Public Education and Intergenerational Economic Mobility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 697-710, August.
    19. Basu, Parantap & Getachew, Yoseph, 2015. "An adjustment cost model of social mobility," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 177-190.
    20. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cor:louvrp:1830. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alain GILLIS (email available below). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.