Optimal Progressive Labor Income Taxation and Education Subsidies When Education Decisions and Intergenerational Transfers Are Endogenous

Dirk Krueger and Alexander Ludwig

American Economic Review, 2013, vol. 103, issue 3, 496-501

Abstract: We quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. In addition to the distortions of labor supply, progressive taxes weaken the incentives to acquire education. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current US status quo.

JEL-codes: D14 H21 H24 H31 I21 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.496
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (79)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.496 (application/pdf)
http://www.aeaweb.org/aer/ds/may2013/P2013_4421_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:103:y:2013:i:3:p:496-501

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().