Optimal Tax Policies for Social Mobility with Wealth and Education Investments

Pierre Pestieau and Maria Racionero

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We consider a society where social mobility is influenced by parental wealth transfers and education investments. Specifically, the educational investments capture the time parents devote to the education of their children. We show that, in the absence of government intervention, the market equilibrium results in a level of upward social mobility lower than that in an ideal first-best scenario. Given the challenge of observing individual characteristics, we characterize the second-best solution achievable through the implementation of non-linear taxation. We consider two alternative government objectives: a weighted utilitarian criterion and a Rawlsian criterion. Additionally, we explore the implications of two alternative informational assumptions: whether educational investments are observable or non-observable.

Keywords: H21; H31; H52 (search for similar items in EconPapers)
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2025-706

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