Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation

@inproceedings{Krueger2013OptimalPT,
  title={Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation},
  author={Dirk Krueger and Alexander Ludwig},
  year={2013}
}
In this paper we characterize quantitatively the optimal mix of progressive income taxes and education subsidies in a model with endogeneous human capital formation, borrowing constraints, income risk and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogenous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives… 

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