Optimal Taxation and Education Subsidies

Project Start:09/2016
Researchers:Fabian Becker, Dirk Krueger, Alexander Ludwig, Faisal Sohail
Category: Macro Finance
Funded by:LOEWE

This project was part of the DFG project "Trends in Inequality: Sources and Policy (TRISP)"

Topic & Objectives

Characterization of optimal mix between early (primary school) and late (secondary school) education subsidies, subsidies to higher education and progressive income taxation in a quantitative macro public finance model with endogenous education choices and human capital investment decisions by parents into their children. 

Key Findings

Optimal policy in the US is characterized by higher non-tertiary and tertiary education subsidies. There exists a strong complementarity between these instruments. Thus, welfare effects of tertiary education subsidies increase if non-tertiary education subsidies are in place.

Policy Implications

Education financing in the US should be more European.

Related Working Papers

No.Author/sTitleYearProgram AreaKeywords
201Dirk Krueger, Alexander LudwigOptimal Taxes on Capital in the OLG Model with Uninsurable Idiosyncratic Income Risk2018 Macro Finance Idiosyncratic Risk, Taxation of Capital, Overlapping Generations, Precautionary Saving, Pecuniary Externality
110Dirk Krueger, Philipp Kr├╝ger, Alexander LudwigOn the Optimal Provision of Social Insurance2015 Macro Finance Progressive Taxation, Education Subsidy, Transitional Dynamics