Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77557
Authors: 
Findeisen, Sebastian
Sachs, Dominik
Year of Publication: 
2012
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 40
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 combinedwith income-contingent loans. To take themodel to the (US) data, we simplify the model to a binary education decision (graduating from college or not). We find that for lowand 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.
Subjects: 
Optimal dynamic taxation
Education
Implementation
JEL: 
H21
H23
I21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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