Optimal Taxation of Human Capital under Uncertainty reconsidered
نویسندگان
چکیده
In a model with ex-ante homogenous households, income risk and a general earnings function, we derive an optimal labor tax rate and optimal education subsidies. It turns out that the distinction of risk-increasing or risk-decreasing education does not have much effect on the optimal tax rate, but is crucial for optimal education subsidies. Moreover, an optimal education policy allows for better social insurance, as the tax-induced distortions in labor supply can be mitigated. This extends the analysis by Bovenberg and Jacobs (2005) to risky economies. Furthermore, we show that education policy itself has no insurance effect and is used solely for efficiency reasons and only if there is another policy instrument, which provides social insurance. JEL Classification: H21, I2, J2
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