Inequality and Assortative Matching

The objective of this subproject is to extend the earlier work of KL by an explicit notion of earlier education (primary and secondary education). On the education margin, KL only consider the college decision and take as given a distribution of households according to some initial skills at the age of 18 (prior to the college decision). The question arises whether the finding of strong optimal education subsidies to tertiary education is robust once this distribution of skills arises from an initial distribution at birth and (parental) investments into early child and youth education (until the age of 18). The next question will be to characterize the optimal mix of early and late education subsidies and progressive income taxes.