On the Optimal Provision of Social Insurance: Progressive Taxation Versus Education Subsidies in General Equilibrium

  title={On the Optimal Provision of Social Insurance: Progressive Taxation Versus Education Subsidies in General Equilibrium},
  author={Dirk Krueger and Alexander Ludwig},
  journal={Political Economy: Government Expenditures \& Related Policies eJournal},
In 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 quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers… Expand
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