TY  - UNPD
A1  - Krueger, Dirk
A1  - Ludwig, Alexander
T1  - On the optimal provision of social insurance : progressive taxation versus education subsidies in general equilibrium
T2  - SAFE working paper series ; No. 110
N2  - n 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 importance of two different channels through which academic talent is transmitted across generations (persistence of innate ability vs. the impact of parental education) for the optimal design of these policies and model different forms of labor as imperfect substitutes, thereby generating general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers. We show that subsidizing higher education has important redistributive benefits, by shrinking the college wage premium in general equilibrium. 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.
T3  - SAFE working paper - 110 
KW  - Progressive Taxation
KW  - Education Subsidy
KW  - Transitional Dynamics
Y1  - 2015
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/37801
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-378017
UR  - http://ssrn.com/abstract=2623069
IS  - April 1, 2015
PB  - SAFE
CY  - Frankfurt am Main
ER  -