Article ID Journal Published Year Pages File Type
970123 Journal of Public Economics 2009 10 Pages PDF
Abstract

This paper considers how optimal education and tax policy depends on the risk properties of human capital. 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. The robustness of these results is explored in two generalizations: nonobservability of education and nonobservability of consumption. Finally, policies that implement the constrained efficient allocations are considered.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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