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Efficient Consolidation of Incentives for Education and Retirement Savings

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  • Radoslaw Paluszynski
  • Pei Cheng Yu

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.

Suggested Citation

  • Radoslaw Paluszynski & Pei Cheng Yu, 2023. "Efficient Consolidation of Incentives for Education and Retirement Savings," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 153-190, July.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:3:p:153-90
    DOI: 10.1257/mac.20200181
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    References listed on IDEAS

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    2. Findeisen, Sebastian & Sachs, Dominik, 2016. "Education and optimal dynamic taxation: The role of income-contingent student loans," Journal of Public Economics, Elsevier, vol. 138(C), pages 1-21.
    3. Makoto Nakajima, 2012. "Rising indebtedness and temptation: A welfare analysis," Quantitative Economics, Econometric Society, vol. 3(2), pages 257-288, July.
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    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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