Human Capital and Optimal Redistribution

Winfried Koeniger and Julien Prat

No 1434, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We characterize optimal redistribution in a dynastic economy with observable human capital and hidden ability. The government can use education to improve the insurance-incentive trade-off because there is a 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 are risky; (ii) human capital may change informational rents. We illustrate numerically that, if ability is i.i.d. across generations, human capital investment declines in parents' income in the social optimum, and show how this optimum can be implemented with student loans or means-tested grants.

Keywords: Human capital; Optimal taxation (search for similar items in EconPapers)
JEL-codes: E24 H21 I22 J24 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2014-11, Revised 2015-05
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Human Capital and Optimal Redistribution (2018)
Working Paper: Human Capital and Optimal Redistribution (2017)
Working Paper: Human Capital and Optimal Redistribution (2015)
Working Paper: Human Capital and Optimal Redistribution (2014)
Working Paper: Human Capital and Optimal Redistribution (2014)
Working Paper: Human capital and optimal redistribution (2014)
Working Paper: Human Capital and Optimal Redistribution (2014)
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