Optimal policy and the risk properties of human capital reconsidered |
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Authors: | Dan Anderberg |
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Institution: | Royal Holloway University of London, United Kingdom;IFS, United Kingdom;CEPR, United Kingdom;CESifo, Germany |
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Abstract: | This paper considers how optimal education and tax policy depends on the risk properties of human capital. A key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium. In the same model a positive intertemporal wedge is optimal. The robustness of these results is explored in two generalizations: nonobservability of education and nonobservability of consumption. Finally, policies that implement the constrained efficient allocations are considered. |
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