IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v51y2007i3p695-713.html
   My bibliography  Save this article

The risk properties of human capital and the design of government policies

Author

Listed:
  • da Costa, Carlos E.
  • Maestri, Lucas J.

Abstract

Whether human capital increases or decreases wage uncertainty is an open question from an empirical standpoint. Yet, most policy prescriptions regarding human capital formation are based on models that impose riskiness on this type of investment. In a two period and finite type optimal income taxation problem we derive prescriptions that are robust to the risk characteristics of human capital: savings should be discouraged, human capital investments encouraged and both types of investment driven to an efficient level from an aggregate perspective. These prescriptions are also robust to the assumptions regarding what choices are observed, despite policy instruments being not.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • 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.
    • Handle: RePEc:eee:eecrev:v:51:y:2007:i:3:p:695-713
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(06)00026-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carlos E. da Costa, 2009. "Yet Another Reason to Tax Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 363-376, April.
    2. Narayana R. Kocherlakota, 2005. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Econometrica, Econometric Society, vol. 73(5), pages 1587-1621, September.
    3. Guesnerie,Roger, 1998. "A Contribution to the Pure Theory of Taxation," Cambridge Books, Cambridge University Press, number 9780521629560, October.
    4. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    5. Boadway, Robin & Marchand, Maurice, 1995. "The Use of Public Expenditures for Redistributive Purposes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 45-59, January.
    6. Narayana R. Kocherlakota, 2004. "Wedges and Taxes," American Economic Review, American Economic Association, vol. 94(2), pages 109-113, May.
    7. Martin Feldstein, 1978. "The Welfare Cost of Capital Income Taxation," NBER Chapters, in: Research in Taxation, pages 29-51, National Bureau of Economic Research, Inc.
    8. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    9. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    10. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 1-30.
    11. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 569-587.
    12. Hoff, Karla & Lyon, Andrew B., 1995. "Non-leaky buckets: Optimal redistributive taxation and agency costs," Journal of Public Economics, Elsevier, vol. 58(3), pages 365-390, November.
    13. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing optimal disability insurance," Working Papers 628, Federal Reserve Bank of Minneapolis.
    14. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty, Optimal Taxation and the Direct versus Indirect Tax Controversy," Economic Journal, Royal Economic Society, vol. 105(432), pages 1165-1179, September.
    15. Naito, Hisahiro, 2004. "Endogenous human capital accumulation, comparative advantage and direct vs. indirect redistribution," Journal of Public Economics, Elsevier, vol. 88(12), pages 2685-2710, December.
    16. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
    17. Mikhail Golosov & Aleh Tsyvinski, 2007. "Optimal Taxation with Endogenous Insurance Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 487-534.
    18. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
    19. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    20. Brett, Craig & Weymark, John A., 2003. "Financing education using optimal redistributive taxation," Journal of Public Economics, Elsevier, vol. 87(11), pages 2549-2569, October.
    21. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    22. 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 373-388, June.
    23. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    24. Hare, P G & Ulph, D T, 1979. "On Education and Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 193-212, October.
    25. Anderberg, Dan & Andersson, Fredrik, 2003. "Investments in human capital, wage uncertainty, and public policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1521-1537, August.
    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. Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1017-1026, October.
    2. Mikhail Golosov & Aleh Tsyvinski, 2007. "Optimal Taxation with Endogenous Insurance Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 487-534.
    3. 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.
    4. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2011. "Optimal Taxation: Merging Micro and Macro Approaches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 147-174, August.
    5. Stefania Albanesi & Roc Armenter, 2012. "Intertemporal Distortions in the Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(4), pages 1271-1307.
    6. Bierbrauer Felix J., 2016. "Effizienz oder Gerechtigkeit?: Ungleiche Einkommen, ungleiche Vermögen und Optimale Steuern," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(1), pages 2-24, April.
    7. Bas Jacobs & Dirk Schindler, 2009. "On the Desirability of Taxing Capital Income to Reduce Moral Hazard in Social Insurance," CESifo Working Paper Series 2806, CESifo.
    8. Stefania Albanesi, 2006. "optimal taxation of entrepreneurial capital with private information," 2006 Meeting Papers 310, Society for Economic Dynamics.
    9. Xiaojun Zhao, 2015. "Optimal Income Taxations with Information Asymmetry: The Lagrange Multiplier Approach," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 199-229, May.
    10. Armenter, Roc & Mertens, Thomas M., 2013. "Fraud deterrence in dynamic Mirrleesian economies," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 139-151.
    11. Boháček, Radim & Kejak, Michal, 2018. "Optimal government policies in models with heterogeneous agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 834-858.
    12. Jacobs, Bas & Schindler, Dirk, 2012. "On the desirability of taxing capital income in optimal social insurance," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 853-868.
    13. Pedro Gomis‐Porqueras & Christopher Waller, 2022. "Optimal Taxes under Private Information: The Role of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 1941-1969, October.
    14. Carlos E. da Costa, 2009. "Yet Another Reason to Tax Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 363-376, April.
    15. Narayana R Kocherlakota, 2005. "Advances in Dynamic Optimal Taxation," Levine's Bibliography 784828000000000518, UCLA Department of Economics.
    16. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-383, June.
    17. Diamond, Peter, 2010. "Taxes and Pensions," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 59-74.
    18. Thomas Mertens & Roc Armenter, 2009. "State Verification and the Incentives to Save," 2009 Meeting Papers 289, Society for Economic Dynamics.
    19. Dirk Schindler & Hongyan Yang, 2015. "Catalysts for social insurance: education subsidies versus physical capital taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(2), pages 274-310, April.
    20. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.

    More about this item

    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:eee:eecrev:v:51:y:2007:i:3:p:695-713. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    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.