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Human Capital and Optimal Redistribution

Author

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  • Julien Prat

    (CREST)

  • Winfried Koeniger

    (University of St.Gallen)

Abstract

We characterize optimal redistribution in a dynastic family model with human capital. We show how the government can affect the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because: (i) returns to human capital depend on the non-insurable risk associated with children's abilities, (ii) human capital may improve or worsen the incentive problem depending on its degree of complementarity with innate ability.

Suggested Citation

  • Julien Prat & Winfried Koeniger, 2015. "Human Capital and Optimal Redistribution," 2015 Meeting Papers 794, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:794
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    Cited by:

    1. Colas, Mark & Findeisen, Sebastian & Sachs, Dominik, 2018. "Optimal Need-Based Financial Aid," CEPR Discussion Papers 13196, C.E.P.R. Discussion Papers.
    2. Robert J. Gary-Bobo & Alain Trannoy, 2015. "Optimal student loans and graduate tax under moral hazard and adverse selection," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 546-576, September.
    3. Fabian Kindermann & Lukas Mayr & Dominik Sachs, 2018. "Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs," NBER Chapters, in: Trans-Atlantic Public Economics Seminar 2018, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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