Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106606
Authors: 
Koeniger, Winfried
Prat, Julien
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Papers 8666
Abstract: 
We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversifiable risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
Subjects: 
optimal taxation
human capital
JEL: 
E24
H21
I22
J24
Document Type: 
Working Paper

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