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Optimal paternalistic health and human capital subsidy

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  • Arbex, Marcelo
  • Mattos, Enlinson

Abstract

We characterize the first-best earnings subsidy when agents are heterogeneous with respect to present-biased preferences and cognitive skills. When agents’ health and human capital biased allocations affect not only welfare but also their labor earnings, a single subsidy corrects for agents’ mistaken decisions. We highlight two novel features of paternalistic interventions: the effects of agents’ decisions on the economy’s supply side, through future productivity, and the role of cognitive skills on individual’s optimal trade-off between human capital accumulation and leisure. We compare this optimal subsidy to an alternative policy package.

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  • Arbex, Marcelo & Mattos, Enlinson, 2019. "Optimal paternalistic health and human capital subsidy," Economics Letters, Elsevier, vol. 176(C), pages 39-42.
    • Handle: RePEc:eee:ecolet:v:176:y:2019:i:c:p:39-42
    DOI: 10.1016/j.econlet.2018.12.006
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    More about this item

    Keywords

    Paternalism; Optimal taxation; Education; Health;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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