Second-Best Income Taxation with Endogenous Human Capital and Borrowing Constraints

We use microdata to show that young households with children are underinsured against the risk that an adult member of the household dies. This empirical finding can be explained by a macroeconomic model with human capital risk, age-dependent returns to human capital investment, and endogenous borrowing constraints due to limited contract enforcement. When calibrated, the model quantitatively accounts for the observed life-cycle variation in life insurance holdings, financial wealth, earnings, and consumption inequality. The model also predicts that reforms making consumer bankruptcy more costly will substantially increase the volume of both credit and insurance. (JEL D14, D91, G22, J13, J24)

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Inequality and Markets: Some Implications of Occupational Diversity

American Economic Journal Microeconomics ◽

10.1257/mic.2.4.38 ◽

2010 ◽

Vol 2 (4) ◽

pp. 38-76 ◽

Cited By ~ 7

Author(s):

Dilip Mookherjee ◽

Debraj Ray

Keyword(s):

Human Capital ◽

Income Distribution ◽

Borrowing Constraints ◽

Return To Education ◽

Educational Investment ◽

Market Conditions ◽

Training Costs ◽

Average Return ◽

Long Run ◽

Persistent Inequality

This paper studies income distribution in an economy with borrowing constraints. Parents leave both financial and educational bequests; these determine the occupational choices of children. Occupational returns are determined by market conditions. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a “rich” set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment. This finding contrasts with the usual presumption of diminishing returns to human capital. It is the central testable proposition of this paper. (JEL D14, D31, J24)

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Pareto efficient income taxation without single-crossing

Social Choice and Welfare ◽

10.1007/s00355-020-01257-z ◽

2020 ◽

Vol 55 (3) ◽

pp. 547-594

Author(s):

Spencer Bastani ◽

Sören Blomquist ◽

Luca Micheletto

Keyword(s):

Income Tax ◽

Pareto Frontier ◽

Income Taxation ◽

Second Best ◽

Full Characterization ◽

Work Related ◽

Single Crossing ◽

Pareto Efficient ◽

Set Up

Abstract We provide a full characterization of a two-type optimal nonlinear income tax model where the single-crossing condition is violated due to an assumption that agents differ both in terms of market abilities and in terms of their needs for a work-related good. We set up a Pareto-efficient tax problem and analyze the entire second-best Pareto-frontier, highlighting several non-standard results, such as the possibility of income re-ranking relative to the laissez-faire and gaps in the Pareto-frontier.

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Pensions, fertility, and education

Journal of Pension Economics and Finance ◽

10.1017/s147474720800365x ◽

2008 ◽

Vol 9 (1) ◽

pp. 75-93 ◽

Cited By ~ 15

Author(s):

VOLKER MEIER ◽

MATTHIAS WREDE

Keyword(s):

Human Capital ◽

Pension Scheme ◽

Second Best ◽

Child Benefits ◽

Positive Externalities

AbstractA pay-as-you-go pension scheme is associated with positive externalities of having children and providing them with human capital. In a framework with heterogeneity in productivity, and stochastic and endogenous investment in fertility and education, we discuss internalization policies associated with child benefits in the pension formula. The second-best scheme displays both a benefit contingent on the contributions of children and a purely fertility-related component.

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Federal Income Taxation and Human Capital

Virginia Law Review ◽

10.2307/1073049 ◽

1984 ◽

Vol 70 (7) ◽

pp. 1357 ◽

Cited By ~ 1

Author(s):

Paul B. Stephan III

Keyword(s):

Human Capital ◽

Income Taxation

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