Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/58657
Authors: 
Findeisen, Sebastian
Sachs, Dominik
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6056
Abstract: 
We study optimal tax and educational policies in a dynamic private information economy, in which ex-ante heterogeneous individuals make an educational investment early in their life and face a stochastic wage distribution. We characterize labor and education wedges in this setting analytically and numerically, using a calibrated example. We present ways to implement the optimum. In one implementation there is a common labor income tax schedule, and a repayment schedule for government loans given out to agents during education. These repayment plans are contingent on loan size and income and capture the history dependence of the labor wedges. Applying the model to US-data and a binary education decision (graduating from college or not) we characterize optimal labor wedges for individuals without college degree and with college degree. The labor wedge of college graduates as a function of income lies first strictly above their counterparts from high-school, but this reverses at higher incomes. The loan repayment schedule is hump-shaped in income for college graduates.
Subjects: 
optimal dynamic taxation
education
implementation
JEL: 
H21
H23
I21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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