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Optimal Policy and the Risk-Properties of Human Capital Reconsidered

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  • Dan Anderberg

    (Royal Holloway University of London)

Abstract

This paper considers how optimal education and tax policy depends on the risk properties of human capital. It is demonstrated that a key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium. In the same model a positive intertemporal wedge is optimal. A set of generalizations, including non-observability of education, non-observability of consumption, and temporal resolution of uncertainty, are then considered to examine the robustness of these results.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 166.

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Date of creation: 2009
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Handle: RePEc:red:sed009:166

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  1. 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).
  2. Marek Kapicka & Radim Bohacek, 2007. "Optimal Human Capital Policies," 2007 Meeting Papers 464, Society for Economic Dynamics.
  3. Darío Maldonado, 2008. "Education policies and optimal taxation," International Tax and Public Finance, Springer, vol. 15(2), pages 131-143, April.
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  7. Albanesi, Stefania & Sleet, Christopher, 2003. "Dynamic Optimal Taxation with Private Information," CEPR Discussion Papers 4006, C.E.P.R. Discussion Papers.
  8. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-88, June.
  9. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc.
  10. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
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  14. Grochulski, Borys & Piskorski, Tomasz, 2010. "Risky human capital and deferred capital income taxation," Journal of Economic Theory, Elsevier, vol. 145(3), pages 908-943, May.
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  16. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  17. Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
  18. Carneiro, Pedro & Hansen, Karsten T. & Heckman, James J., 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," IZA Discussion Papers 767, Institute for the Study of Labor (IZA).
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  21. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
  22. Narayana R. Kocherlakota, 2005. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Econometrica, Econometric Society, vol. 73(5), pages 1587-1621, 09.
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  26. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
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