Optimal Capital and Progressive Labor Income Taxation with Endogenous Schooling Decisions and Intergenerational Transfers∗
نویسندگان
چکیده
In this paper we characterize quantitatively the optimal mix of progressive labor income and capital income taxes as well as and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk. and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.
منابع مشابه
Optimal Progressive Labor Income Taxation and Education Subsidies When Education Decisions and Intergenerational Transfers are Endogenous∗
We thank Fatih Guvenen, Mike Golosov, Felicia Ionescu and seminar participants at Bocconi, LSE, Royal Holloway and University of Zürich for many useful comments. Krueger gratefully acknowledges …nancial support from the NSF under grant SES-0820494. Ludwig gratefully acknowledges …nancial support from the Land North Rhine Westphalia.
متن کاملOptimal Government Spending and Taxation in Three-Sector Endogenous Growth Model-Case Iran
The recent literature on taxation and growth has stressed the optimality of a zero long-run taxation on all accumulative factors of production. For a given path of government spending, the optimal tax plan requires the government to build up a positive stock of public wealth in the short run in the long-run, government spending can be financed with the income accruing from the management of the...
متن کاملTaxing Capital is Not a Bad Idea Indeed: The Role of Human Capital and Labor-Market Frictions
In a second-best optimal growth setup with only factor taxes as available instruments, is it optimal to fully replace capital by labor income taxation? The answer is generally positive based on Chamley, Judd, Lucas, and many follow-up studies. In the present paper, we revisit this important tax reform-related issue by developing a human capitalbased endogenous growth framework with frictional l...
متن کاملSubjective Discount Rates, Intergenerational Transfers and the Return to Schooling
Subjective Discount Rates, Intergenerational Transfers and the Return to Schooling Using a dynamic programming model of schooling decisions, we investigate the relationship between subjective discount rates and the labor market ability (the discount rate bias) on a panel taken from the National Longitudinal Survey of Youth (NLSY). Given household human capital and Armed Forces Qualification tes...
متن کاملMultiple Equilibria and Progressive Taxation of Labor Income
This paper shows that in a one-sector real business cycle model with strong increasing returns in production, progressive taxation of labor income can stabilize the economy against sunspot ‡uctuations, even when the capital tax schedule is ‡at. This result is consistent with the U.S. tax code in which labor-income taxation is more progressive than capital-income taxation.
متن کامل