The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model

Le schéma ELIE de Kolm taxe les capacités de travail au lieu des revenus du travail de manière à éviter les effets distortifs de la taxation sur l’offre de travail. Pourtant, Kolm n’étudie pas l’impact d’ELIE sur la formation de capital human. Dans ce papier, nous construisons un modèle à générations imbriquées (OLG) avec agents hétérogènes et croissance endogène mue par l’investissement en capital humain. Nous étudions l’effet de ELIE sur l’investissement en education et sur les autres variables économiques aggrégées. En calibrant le modèle sur des données françaises, nous mettons en lumière l’arbitrage entre croissance et redistribution. Quand le marché du crédit est parfait, ELIE arrive à réduire les inégalités et la pauvreté, mais il le fait au détriment de l’investissement en éducation et de la croissance. Dans une économie avec un marché du crédit imparfait où les individus ne peuvent pas emprunter pour s’éduquer, l’arbitrage entre croissance et redistribution n’est pas renversé, mais il est moins sévère. Cependant, on arrive à inverser complètement cet arbitrage en changeant simplement la base de la taxation pour la jeune génération d’une manière qui est équivalente à subventionner l’éducation. Abstract The ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.The ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.