NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax and Education Policy in a Heterogeneous Agent Economy: What Levels f Redistribution Maximize Growth and Efficiency?

Roland Benabou

NBER Working Paper No. 7132
Issued in May 1999
NBER Program(s):   EFG   PE

This paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy. Such redistributive policies entail distortions to labor supply and savings, but also serve as partial substitutes for missing credit and insurance markets. The resulting tradeoffs for growth and efficiency are explored, both theoretically and quantitatively, in a model which yields complete analytical solutions. Progressive education finance always leads to higher income growth than taxes and transfers, but at the cost of lower insurance. Overall efficiency is assessed using a new measure which properly reflects aggregate resources and idiosyncratic risks but, unlike a standard social welfare function, does not reward equality per se. Simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude, resulting in reasonable values for the optimal rates. Aggregate income and aggregate welfare provide only very crude lower and upper bounds around the true efficiency tradeoff.

download in pdf format
   (649 K)

email paper

This paper is available as PDF (649 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Benabou, Roland. "Tax And Education Policy In A Heterogeneous-Agent Economy: What Levels Of Redistribution Maximize Growth And Efficiency," Econometrica, 2002, v70(2,Mar), 481-517.

Users who downloaded this paper also downloaded these:
Barro w7038 Inequality, Growth, and Investment
Benabou w4311 Heterogeneity, Stratification, and Growth
Long The Impact of Federal Tax Credits for Higher Education Expenses
Heckman, Lochner, and Taber w6384 Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents
Poterba w5677 Demographic Structure and the Political Economy of Public Education
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us