Human Capital and Optimal Redistribution
Journal
Review of Economic Dynamics
Series
School of Economics and Political Science, Discussion Paper Series
ISSN
1094-2025
ISSN-Digital
1096-6099
Type
journal article
Date Issued
2018-01
Author(s)
Abstract
We characterize optimal redistribution in a dynastic economy with observable human capital and hidden ability. We show that the wedge between human capital investment in the laissez faire and the social optimum differs from the wedge for bequests because (i) returns to human capital are risky, and (ii) human capital may change informational rents. We compute the optimal allocation when ability is persistent across generations, as calibrated for the U.S. We show how the allocation can be implemented with student loans featuring contingent repayments. The quantitative results reveal that human capital investment should (i) increase in parental income because of ability transmission across generations, but (ii) decrease in inherited assets because of the negative effect of wealth on labor supply.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Publisher
ScienceDirect
Publisher place
Amsterdam [u.a.]
Volume
27
Start page
1
End page
26
Pages
26
Subject(s)
Eprints ID
253258