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Efficient Consolidation of Incentives for Education and Retirement Savings

Radek Paluszynski and Pei Cheng Yu

American Economic Journal: Macroeconomics, 2023, vol. 15, issue 3, 153-90

Abstract: We study optimal tax policies with human capital investment and retirement savings for present-biased agents. Agents are heterogeneous in their innate ability and make risky education investments, which determines their labor productivity. We demonstrate that the optimal distortions vary with education status. In particular, the optimal policy encourages human capital investment with savings incentives. Our implementation uses income-contingent student loans and existing retirement policies, augmented by a new tax instrument that subsidizes retirement savings for college graduates. The instrument mimics the latest policy proposals by allowing employers to offer 401(k) matching contributions proportional to student loans repayment.

JEL-codes: G51 H21 H24 I26 J24 J26 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/mac.20200181

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