IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v15y2023i3p153-90.html
   My bibliography  Save this article

Efficient Consolidation of Incentives for Education and Retirement Savings

Author

Listed:
  • Radoslaw Paluszynski
  • Pei Cheng Yu

Abstract

We study optimal tax policies with human capital investment and retirement savings for present-biased agents. Agents are heterogeneous in their innate ability and make risky education investments, which determines their labor productivity. We demonstrate that the optimal distortions vary with education status. In particular, the optimal policy encourages human capital investment with savings incentives. Our implementation uses income-contingent student loans and existing retirement policies, augmented by a new tax instrument that subsidizes retirement savings for college graduates. The instrument mimics the latest policy proposals by allowing employers to offer 401(k) matching contributions proportional to student loans repayment.

Suggested Citation

  • Radoslaw Paluszynski & Pei Cheng Yu, 2023. "Efficient Consolidation of Incentives for Education and Retirement Savings," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 153-190, July.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:3:p:153-90
    DOI: 10.1257/mac.20200181
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20200181
    Download Restriction: no
    File URL: https://doi.org/10.3886/E154761V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20200181.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20200181.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/mac.20200181?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    2. Findeisen, Sebastian & Sachs, Dominik, 2016. "Education and optimal dynamic taxation: The role of income-contingent student loans," Journal of Public Economics, Elsevier, vol. 138(C), pages 1-21.
    3. Makoto Nakajima, 2012. "Rising indebtedness and temptation: A welfare analysis," Quantitative Economics, Econometric Society, vol. 3(2), pages 257-288, July.
    4. Jonathan Heathcote & Hitoshi Tsujiyama, 2021. "Optimal Income Taxation: Mirrlees Meets Ramsey," Journal of Political Economy, University of Chicago Press, vol. 129(11), pages 3141-3184.
    5. Nigai, Sergey, 2017. "A tale of two tails: Productivity distribution and the gains from trade," Journal of International Economics, Elsevier, vol. 104(C), pages 44-62.
    6. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
    7. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    8. Yu, Pei Cheng, 2020. "Seemingly exploitative contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 299-320.
    Full references (including those not matched with items on IDEAS)

    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. Radoslaw Paluszynski & Pei Cheng Yu, "undated". "Optimal Taxation with Risky Human Capital and Retirement Savings," Discussion Papers 2019-05, School of Economics, The University of New South Wales.
    2. Findeisen, Sebastian & Sachs, Dominik, 2016. "Education and optimal dynamic taxation: The role of income-contingent student loans," Journal of Public Economics, Elsevier, vol. 138(C), pages 1-21.
    3. Stefanie Stantcheva, 2017. "Optimal Taxation and Human Capital Policies over the Life Cycle," Journal of Political Economy, University of Chicago Press, vol. 125(6), pages 1931-1990.
    4. Stefanie Stantcheva, 2020. "Dynamic Taxation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 801-831, August.
    5. Paweł Doligalski & Abdoulaye Ndiaye & Nicolas Werquin, 2023. "Redistribution with Performance Pay," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 371-402.
    6. Winfried Koeniger & Julien Prat, 2018. "Human Capital and Optimal Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 1-26, January.
    7. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2020. "How Should Tax Progressivity Respond to Rising Income Inequality?," NBER Working Papers 28006, National Bureau of Economic Research, Inc.
    8. Stefanie Stantcheva, 2015. "Optimal Income, Education, and Bequest Taxes in an Intergenerational Model," NBER Working Papers 21177, National Bureau of Economic Research, Inc.
    9. Nezih Guner & Javier López-Segovia & Roberto Ramos, 2020. "Reforming the individual income tax in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 11(4), pages 369-406, December.
    10. Ugo Colombino & Nizamul Islam, 2021. "Combining microsimulation and optimization to identify optimal universalistic tax-transfer rule," LISER Working Paper Series 2021-06, Luxembourg Institute of Socio-Economic Research (LISER).
    11. Findeisen, Sebastian & Sachs, Dominik, 2014. "Efficient Labor and Capital Income Taxation over the Life Cycle," Working Papers 14-17, University of Mannheim, Department of Economics.
    12. Findeisen, Sebastian & Sachs, Dominik, 2017. "Redistribution and insurance with simple tax instruments," Journal of Public Economics, Elsevier, vol. 146(C), pages 58-78.
    13. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.
    14. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    15. Karl Schulz, 2021. "Redistribution of Return Inequality," CESifo Working Paper Series 8996, CESifo.
    16. Colombino, Ugo & Islam, Nizamul, 2022. "The "Robot Economy" and Optimal Tax-Transfer Reforms," IZA Discussion Papers 15198, Institute of Labor Economics (IZA).
    17. Roozbeh Hosseini & Ali Shourideh, 2019. "Retirement Financing: An Optimal Reform Approach," Econometrica, Econometric Society, vol. 87(4), pages 1205-1265, July.
    18. Findeisen, Sebastian & Sachs, Dominik, 2011. "Education and Optimal Dynamic Taxation," IZA Discussion Papers 6056, Institute of Labor Economics (IZA).
    19. Findeisen, Sebastian & Sachs, Dominik, 2015. "Designing efficient college and tax policies," Working Papers 15-09, University of Mannheim, Department of Economics.
    20. Janeba, Eckhard & Schulz, Karl, 2023. "Nonlinear taxation and international mobility in general equilibrium," Journal of Public Economics, Elsevier, vol. 218(C).

    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    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:aea:aejmac:v:15:y:2023:i:3:p:153-90. 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: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.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.