Efficient Consolidation of Incentives for Education and Retirement Savings

87 Pages Posted: 7 Nov 2019 Last revised: 19 Apr 2023

See all articles by Radoslaw Paluszynski

Radoslaw Paluszynski

University of Houston

Pei Cheng Yu

UNSW Australia Business School, School of Economics

Date Written: May 27, 2019

Abstract

We study optimal tax policies with human capital investment and retirement savings for present-biased agents. Agents are heterogeneous in their innate ability and make risky education investments which determines their labor productivity. We demonstrate that the optimal distortions vary with education status. In particular, the optimal policy encourages human capital investment with savings incentives. Our implementation uses income-contingent student loans and existing retirement policies, augmented by a new tax instrument that subsidizes retirement savings for college graduates. The instrument mimics the latest policy proposals by allowing employers to offer 401(k) matching contributions proportional to student loans repayment.

Keywords: Present bias, Taxation, Human capital, Retirement

JEL Classification: H62, H21, H55, I22

Suggested Citation

Paluszynski, Radoslaw and Yu, Pei Cheng, Efficient Consolidation of Incentives for Education and Retirement Savings (May 27, 2019). UNSW Business School Research Paper, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3391049 or http://dx.doi.org/10.2139/ssrn.3391049

Radoslaw Paluszynski

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

Pei Cheng Yu (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

HOME PAGE: http://pcyu.weebly.com

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