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Human Capital, Multiple Income Risk and Social Insurance

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Abstract

We set up an OLG-model, where households both choose human capital investment and decide on investing their endogenous savings in a portfolio of riskless and risky assets, exposing them to (aggregate) wage and capital risks due to technological shocks. We derive the optimal public policy mix of taxation and education policy. We show that risks can be efficiently diversified between private and public consumption. This results hinges on that the government can apply a wide set of instruments, including differentiated wage and capital taxation. We also show that for sufficient risk aversion the (Northern) European way of relying on progressive wage taxation and granting education subsidies is an optimal response to wage and capital risks.

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  • Schindler, Dirk, 2008. "Human Capital, Multiple Income Risk and Social Insurance," Discussion Papers 2008/18, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2008_018
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    File URL: http://hdl.handle.net/11250/164132
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    Cited by:

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    2. Muinah Fadhilah & Andriyansah, 2017. "Strategic Implementation of Environmentally Friendly Innovation of Small and Medium-Sized Enterprises in Indonesia," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 134-148.

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    More about this item

    Keywords

    Optimal Income Taxation; Multiple Income Risks; Human Capital Investment; Portfolio Choice;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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