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SMYE
BibTeX
@MISC{Findeisen_smye,
author = {Sebastian Findeisen and Dominik Sachs and Sebastian Findeisen and Dominik Sachs and Manuel Amador and Dan Anderberg and Carlos Da Costa and Emmanuel Farhi and Mike Golosov and Bas Jacobs and Normann Lorenz and Elena Mattana and Florian Scheuer and Dirk Schindler and Kjetil Storesletten and Aleh Tsyvinski and Iván Werning and Christoph Winter},
title = {SMYE},
year = {}
}
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Abstract
Abstract We study Pareto optimal tax and education policies when human capital upon labor market entry is endogenous and individuals face wage uncertainty. Though optimal labor distortions are history-dependent, i.e. depend on income and education, simple policy instruments can yield the desired distortions: a single nonlinear labor income tax schedule combined with income-contingent loans. To take the model to the (US) data, we simplify the model to a binary education decision (graduating from college or not). We find that for low and intermediate incomes the labor supply decision of college graduates should be distorted more heavily than for individuals without a college degree. As a consequence, the optimal student loan repayment schedule increases in income for this range. This result holds along the Pareto frontier. We compare the second best to a situation where loan repayment is restricted to be independent from income and find significant welfare gains. JEL-classification: H21, H23, I21
