Teach a Man to Fish? Education vs. Optimal Taxation

Abstract

In models of redistribution, differences in human capital are often the relevant source of heterogeneity amongst individuals. Presumably, the distribution of human capital can be manipulated through education spending. This paper examines the use of education as a redistributive tool when there is a nonlinear tax system in place. The results show that taxation, whether under full or asymmetric information, substantially reduces the redistributive role of education spending in maximizing social welfare. This points to a conflict between the equalization of utility and human capital outcomes.

Keywords: Optimal Taxation, Redistribution, Equality of Opportunity

JEL Classification: D63, D82, H21, I22, I28