NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

On the Optimal Provision of Social Insurance: Progressive Taxation versus Education Subsidies in General Equilibrium

Dirk Krueger, Alexander Ludwig

NBER Working Paper No. 21538
Issued in September 2015
NBER Program(s):Economic Fluctuations and Growth, Public Economics

In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.

download in pdf format
   (1255 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21538

Published: Krueger, Dirk & Ludwig, Alexander, 2016. "On the optimal provision of social insurance: Progressive taxation versus education subsidies in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 72-98. citation courtesy of

Users who downloaded this paper also downloaded* these:
Farhi and Gabaix w21524 Optimal Taxation with Behavioral Agents
Heathcote, Storesletten, and Violante w19899 Optimal Tax Progressivity: An Analytical Framework
Chiappori and Meghir w20189 Intra-household Welfare
Jaimovich, Rebelo, and Wong w21539 Trading Down and the Business Cycle
Giroud and Rauh w21534 State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us