Human Capital and Optimal Redistribution

Winfried Koeniger and Julien Prat

No 10267, CEPR Discussion Papers from Centre for Economic Policy Research

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: Intergenerational equity; Human capital; Optimal taxation (search for similar items in EconPapers)
JEL-codes: E24 H21 I22 J24 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-hrm and nep-mac
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Citations: View citations in EconPapers (2)

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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 (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)
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