Optimal taxation in the Uzawa-Lucas model with externality in human capital

Arantza Gorostiaga, Jana Hromcová, Miguel Ángel López-García

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)

Abstract

In this paper we study the optimal policy in the Uzawa-Lucas model with externality in human capital when agents value both consumption and leisure. We find that the government pursuing the first best can achieve its goal by a subsidy which depends on foregone earnings while studying and which is financed through a lump sum tax. Anyway, the optimal policy, that should be designed to provide incentives for agents to devote more time to schooling and cut both on leisure and working, is not unique. There exists an infinite number of combinations of consumption, capital income, labor income and lump sum taxes that can decentralize the first best. © 2012 Springer-Verlag.
Original languageEnglish
Pages (from-to)111-129
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume108
Issue number2
DOIs
Publication statusPublished - 1 Jan 2013

Keywords

  • Endogenous growth
  • Indeterminacy
  • Optimal policy
  • Two-sector model

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