Human Capital and Optimal Redistribution

52 Pages Posted: 20 Nov 2014

See all articles by Winfried Koeniger

Winfried Koeniger

University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics

Julien Prat

University of Vienna; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: November 2014

Abstract

We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversi…able risk of children'’s ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.

Keywords: human capital, optimal taxation

JEL Classification: E24, H21, I22, J24

Suggested Citation

Koeniger, Winfried and Prat, Julien, Human Capital and Optimal Redistribution (November 2014). CFS Working Paper, No. 497. Available at SSRN: https://ssrn.com/abstract=2528465 or http://dx.doi.org/10.2139/ssrn.2528465

Winfried Koeniger (Contact Author)

University of St. Gallen ( email )

Swiss Institute for Empirical Economic Research
Varnbüelstr. 14
St.Gallen, CH-9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Schaumburg-Lippe Str. 7/9
D-53072 Bonn
Germany

Julien Prat

University of Vienna ( email )

Bruenner Strasse 72
Vienna 1210, Vienna
Austria

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
42
Abstract Views
525
PlumX Metrics