Investment in Human Capital in a Macrodynamic Framework: Redistributive Taxation, Public Debt and Welfare

Leandro Gonçalves do Nascimento

No 539, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: Efficient investment in human capital is a subject of great concern among economists. By means of an overlapping-generations macrodynamic model with credit constraints, imperfect insurance and exogenous labor supply, we appraise inefficiencies related to misinvestment in human capital and propose a simple scheme of redistributive taxation to mitigate them. A numerical simulation is calibrated in order to match stylized facts of the quite unequal Brazilian economy and shows that, in steady-state, with a flat-tax mechanism and lump-sum transfers, government intervention is beneficial to the extent it maximizes our utilitarian measure of welfare and reduces both inefficiency associated with misdirected investment in human capital and standard inequality indexes. After considering the possibility of decomposing our utilitarian measure of welfare and of allowing for public debt, we show that reduced inequality is the driving force which accounts for welfare improvement and that public debt plays no role. Robustness analysis shows that endogenizing labor supply does not lead to substantial changes in previous results

Keywords: investment in human capital; idiosyncratic risk; efficiency; overaccumulation of capital; redistributive taxation; public debt; welfare measures; social insurance. (search for similar items in EconPapers)
JEL-codes: D1 D31 D52 H21 (search for similar items in EconPapers)
Date: 2004-08-11
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