Human Capital and Optimal Redistribution

Winfried Koeniger and Julien Prat ()
Additional contact information
Julien Prat: CREST

No 8666, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversifiable risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.

Keywords: optimal taxation; human capital (search for similar items in EconPapers)
JEL-codes: E24 H21 I22 J24 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2014-11
New Economics Papers: this item is included in nep-hrm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - revised version published in: Review of Economic Dynamics, 2018, 27, 1-26.

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Related works:
Journal Article: Human Capital and Optimal Redistribution (2018)
Working Paper: Human Capital and Optimal Redistribution (2017)
Working Paper: Human Capital and Optimal Redistribution (2015)
Working Paper: Human Capital and Optimal Redistribution (2014)
Working Paper: Human capital and optimal redistribution (2014)
Working Paper: Human Capital and Optimal Redistribution (2014)
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