Catalyzers for Social Insurance: Education Subsidies vs. Real Capital Taxation
AbstractTo analyze the optimal social insurance package, we set up a two-period life-cycle model with risky human capital investment, where the government has access to labor taxation, education subsidies and capital taxation. Social insurance is provided by redistributive labor taxation. Moreover, both education subsidies and capital taxation are used as catalyzers to facilitate social insurance by mitigating distortions from labor taxation. We derive a Ramsey-rule for the optimal combination of these two instruments. Relative to capital taxation, optimal education subsidies increase in their relative effectiveness to boost labor supply and in households' underinvestment into education, but they decrease in their relative net distortions. For their absolute levels, indirect complementarity effects, i.e., influencing the effectiveness of the other instrument, do matter. Generally, a decrease in capital taxes should go along with an increase in education subsidies.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2010-05.
Length: 26 pages
Date of creation: 30 Sep 2010
Date of revision:
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- I2 - Health, Education, and Welfare - - Education
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-DGE-2010-10-09 (Dynamic General Equilibrium)
- NEP-HRM-2010-10-09 (Human Capital & Human Resource Management)
- NEP-IAS-2010-10-09 (Insurance Economics)
- NEP-MIC-2010-10-09 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ignacio Palacios-Huerta, 2001.
"An Empirical Analysis of the Risk Properties of Human Capital Returns,"
2001-10, Brown University, Department of Economics.
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- Costa, Carlos Eugênio da & Maestri, Lucas Jóver, 2004.
"The risk-properties of human capital and the design of government policies,"
Economics Working Papers (Ensaios Economicos da EPGE)
554, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- da Costa, Carlos E. & Maestri, Lucas J., 2007. "The risk properties of human capital and the design of government policies," European Economic Review, Elsevier, vol. 51(3), pages 695-713, April.
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