 Learning by Doing and Ben-Porath: Life-cycle Predictions and Policy ImplicationsJournal of Economic Dynamics and Control, 2018, vol. 90, issue C, 220-235 Abstract: Many government policies affect incentives to acquire human capital. Two workhorse models dominate the literature analyzing these policies: Learning by Doing (LBD) and Ben-Porath (BP). This paper makes two novel findings related to these models. First, LBD and BP generate different predictions for life-cycle earnings growth. BP predicts that the heterogeneity in earnings growth rates across workers should disappear over the life-cycle because the workers stop investing as they age. The LBD model cannot replicate this feature because workers accumulate human capital automatically throughout the life-cycle. Second, the same model features that generate different life-cycle predictions between BP and LBD also generate different implications for policies that affect the payoff to human capital accumulation. To illustrate this quantitatively, I show that increasing marginal labor tax rates for top earners depresses human capital accumulation more under BP. As a result, the Laffer curve for top marginal income tax rates is flatter, and peaks 10 percentage points lower, with BP versus LBD. Keywords: Life-cycle earnings; Human capital; Progressive taxes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:90:y:2018:i:c:p:220-235 DOI: 10.1016/j.jedc.2018.03.002 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.