Optimal Taxation with Risky Human Capital and Retirement Savings
Radek Paluszynski and
Pei Cheng Yu
No 2019-05, Discussion Papers from School of Economics, The University of New South Wales
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 and affects their consumption path. We characterize the optimal wedges and show that they are different across education groups. More specifically, we demonstrate how the optimal policy encourages human capital investment with savings incentives. We show that the optimum can be implemented with income-contingent student loans, and existing retirement policies augmented by a new tax instrument that subsidizes retirement savings for college graduates. The proposed instrument takes the form of employer’s 401(k) matching contribution proportional to the repayment of student loans, and mimics the latest policy proposals that aim to incentivize college education. We show that the optimal tax system yields significant welfare gains relative to the optimal policies designed for time-consistent agents.
Keywords: Present bias; Human capital; Retirement; Sequential screening (search for similar items in EconPapers)
Pages: 57 pages
New Economics Papers: this item is included in nep-dge and nep-pub
References: Add references at CitEc
Citations:
Downloads: (external link)
http://research.economics.unsw.edu.au/RePEc/papers/2019-05.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable: Back-end server is at capacity
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:swe:wpaper:2019-05
Access Statistics for this paper
More papers in Discussion Papers from School of Economics, The University of New South Wales Contact information at EDIRC.
Bibliographic data for series maintained by Hongyi Li ().