Learning and (or) Doing: Human Capital Investments and Optimal Taxation

Stantcheva, Stefanie

doi:10.3386/w21381

Cited by 14 publications

(13 citation statements)

References 21 publications

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“…3 In contrast, da Costa and Maestri (2007), Jacobs, Schindler, and Yang (2012) and Stantcheva (2015a) all study optimal taxation with risky Ben-Porath technology, but allow human capital investments to be observable. This not only shuts down the moral hazard dimension of the problem, but also permits the government to use direct human capital subsidies conditional on learning effort.…”

Section: Relationship To the Existing Literaturementioning

confidence: 99%

Optimal Taxation with Risky Human Capital

Kapicka

Neira

2015

SSRN Journal

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We study optimal tax policies in a life-cycle economy with risky human capital and permanent ability differences, where both ability and learning effort are private information of the agents. The optimal policies balance several goals: redistribution across agents, insurance against human capital shocks, incentives to accumulate human capital, and incentives to work. We show that, in the optimum, i) if utility is separable in labor and learning effort, the inverse marginal labor income tax rate follows a random walk, ii) the "no distortion at the top" result does not apply if discouraging labor supply increases incentives to invest in human capital, and iii) quantitatively, high-ability agents face very risky consumption in order to elicit learning effort while low-ability agents are insured. We also find large welfare gains for the U.S. from switching to an optimal tax system. J.E.L. Codes: E6, H2

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Section: Relationship To the Existing Literaturementioning

confidence: 99%

Optimal Taxation with Risky Human Capital

Kapicka

Neira

2015

SSRN Journal

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“…Starting with Weinzierl (), many works in this literature, Farhi and Werning (), Bastani et al. (), Findeisen and Sachs (), and Stantcheva (), have shown that the bulk of the gains from using unrestricted instruments, that is, from attaining the constrained efficient allocations, is captured by the use of age‐dependent taxes. This mechanism design approach therefore offers an important reminder of how far one can get through the use of age‐dependent taxes and provides an important motivation for taking seriously these instruments.…”

Section: Introductionmentioning

confidence: 99%

“…This is rapidly changing. Stantcheva (, 2017), Findeisen and Sachs (), Kapička (), da Costa and Maestri (), Kapička (), and Kapička and Neira () do take into account the impact of tax policies on human capital formation. Yet, important compromises are still needed.…”

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confidence: 99%

“…Kapička (, ) does not allow for idiosyncratic shocks. Stantcheva (), Findeisen and Sachs (), Kapička and Neira (), and da Costa and Maestri () allow for idiosyncratic shocks but consider very simple settings to focus on the qualitative implications of human capital endogeneity. Stantcheva () offers a quantitative assessment but uses a specification of human capital for which accumulation takes place by direct monetary investment.…”

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confidence: 99%

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Age‐dependent Taxes With Endogenous Human Capital Formation

Costa

Santos

2018

Int Economic Review

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We assess the gains attained by the introduction of age-dependent labor income taxes in an overlapping generations economy where individuals live a meaningful life cycle and endogenously accumulate human capital. The model is sufficiently rich to isolate the role of general equilibrium effects, credit market imperfections, and different forms of human capital accumulation. The large welfare gains we obtain cannot be attained without age dependence, nor can they be attained with age-dependent taxes if progressivity of labor income taxes and capital income tax rates are not suitably adjusted to profit from the complementarity of these instruments.

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“…We assume that human capital investments are risky and partially observable. 4 In contrast, da Costa and Maestri (2007) ;Jacobs, Schindler, and Yang (2012); and Stantcheva (2015) all study optimal taxation with risky Ben-Porath technology, but allow human capital investments to be fully observable. 5 We think that assuming that a part of human capital investments is unobservable is a reasonable assumption to make.…”

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confidence: 99%

Optimal Taxation with Risky Human Capital

Kapicka

Neira

2019

American Economic Journal: Macroeconomics

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We study optimal tax policies in a life-cycle economy with permanent ability differences and risky human capital investments that have both an unobservable component, learning effort, and an observable component, schooling. The optimal policies balance redistribution across agents, insurance against human capital shocks, and incentives to learn and work. In the optimum, (i ) high-ability agents face risky consumption while low-ability agents are insured; (ii ) the optimal schooling subsidy is substantial but less than 100 percent; (iii) if utility is separable in labor and learning effort, the inverse labor wedge follows a random walk; and (iv ) if the utility is not separable then the “no distortion at the top” result does not apply. The welfare gains from switching to the optimal tax system are about 1 percent in annual consumption equivalents. (JEL D15, H21, H24, I26, J24)

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Learning and (or) Doing: Human Capital Investments and Optimal Taxation

Cited by 14 publications

References 21 publications

Optimal Taxation with Risky Human Capital

Optimal Taxation with Risky Human Capital

Age‐dependent Taxes With Endogenous Human Capital Formation

Optimal Taxation with Risky Human Capital

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