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Optimal policy and the risk properties of human capital reconsidered

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  • Anderberg, Dan

Abstract

This paper considers how optimal education and tax policy depends on the risk properties of human capital. A key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium. In the same model a positive intertemporal wedge is optimal. The robustness of these results is explored in two generalizations: nonobservability of education and nonobservability of consumption. Finally, policies that implement the constrained efficient allocations are considered.

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  • Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1017-1026, October.
    • Handle: RePEc:eee:pubeco:v:93:y:2009:i:9-10:p:1017-1026
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    More about this item

    Keywords

    Education Optimal taxation Risk;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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