OPTIMAL TAXATION IN BEN-PORATH MODEL
Keywords:
human capital investments, Mirrlees, Pareto, Ramsey, incomplete markets
Abstract
This paper is about Ben-Porath model of human capital investments and non-trivial labor supply decisions throughout the lifetime of the individual. In Ben-Porath model without taxation: The time allocation condition ensures optimal trade-offs between leisure, work, and investment in human capital. Shadow price of human capital is increasing over time. In Ben-Porath-Huggett model Mirrlees taxation is the best option when skill is private knowledge, Ramsey taxation requires subsidies to prevent human capital stagnation. Pareto taxation is the second-best solution when redistribution is a goal. Ramsey taxation yields highest government revenues, Mirrlees and Pareto taxes yield highest utility.
References
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29. Mirrlees, J. A. (1971). An exploration in the theory of optimal income taxation. Review of Economic Studies,38, 175–208.
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32. Reis, B. C. (2019). Optimal taxation with unobservable investment in human capital. Oxford Economic Papers. doi:10.1093/oep/gpz038
33. Saez, E. ,S. Stantcheva (2016). Generalized social marginal welfare weights for optimal tax theory. The American Economic Review, 106(1), pp.24-45.
34. Saez, E. ,S. Stantcheva (2016). Generalized social marginal welfare weights for optimal tax theory. The American Economic Review, 106(1), pp.24-45.
35. Saez,E.(2001).Using elasticities to derive optimal income tax rates, The Review of Economic Studies, 68(1), pp.205- 229.
36. Schultz, T. W. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1–17. http://www.jstor.org/stable/1818907
37. Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513
38. Stantcheva, S.(2017). Optimal Taxation and Human Capital Policies over the Life Cycle, Journal of Political Economy 125, 1931–90.
39. Stantcheva,S. (2015). Learning and (or) Doing: Human Capital Investments and Optimal Taxation, NBER Working Papers 21381, National Bureau of Economic Research, Inc.
40. Trostel, P. A. (1993). The Effect of Taxation on Human Capital. Journal of Political Economy, 101(2), 327–350. http://www.jstor.org/stable/2138822
41. Werning,I.(2007).Pareto efficient income taxation. NBER Public Economics meeting
2. Albanesi, S., Sleet, C. (2006). Dynamic Optimal Taxation with Private Information. The Review of Economic Studies, 73(1), 1–30. http://www.jstor.org/stable/3700615
3. Atkinson, Anthony and Stiglitz, Joseph, (1976), The design of tax structure: Direct versus indirect taxation, Journal of Public Economics, 6, issue 1-2, p. 55-75.
4. Battaglini, Marco, Stephen Coate. (2008). Pareto Efficient Income Taxation with Stochastic Abilities. J. Public Econ. 92 (3): 844–68.
5. Becker, Gary S. (1964). Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. Chicago: Univ. Chicago Press.
6. Ben-Porath, Yoram. (1967). The Production of Human Capital and the Life Cycle of Earnings. J.P.E. 75 (4): 352–65.
7. Bils, Mark, and Peter J. Klenow. (2000). Does Schooling Cause Growth? American Economic Review 90 (5): 1160–83.
8. Bovenberg, Lans A., and Bas Jacobs. (2005). Redistribution and Education Subsidies Are Siamese Twins. J. Public Econ. 89 (11–12): 2005–35.
9. Chamley, C. (1986). Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives. Econometrica, 54(3), 607–622. https://doi.org/10.2307/1911310
10. Davies,J. Whalley,J.(1991).Taxes and Capital Formation: How Important is Human Capital?,book chapter in National Saving and Economic Performance, p. 163-200
11. Diamond, P. (1998). Optimal income taxation: An example with a U-shaped pattern of optimal marginal tax rates. American Economic Review, 88, 83–95.
12. Farhi E, Werning I. (2013). Insurance and taxation over the life cycle. Rev. Econ. Stud. 80:596–635
13. Golosov, M., Troshkin, M., Tsyvinski, A. (2016). Redistribution and Social Insurance. The American Economic Review, 106(2), 359–386. http://www.jstor.org/stable/43821455
14. Golosov, Mikhail, Aleh Tsyvinski, and Ivan Werning. (2006). New dynamic public finance: A users guide. NBER Macroeconomics Annual 21:317-363.
15. Gruber, J.Saez,E.(2001). The Elasticity of Taxable Income: Evidence and Implications, Journal of Public Economics 84(1):1-32
16. Hall, Robert E., and Charles I. Jones. (1999). Why Do Some Countries Produce So Much More Output Per Worker Than Others? The Quarterly Journal of Economics 114 (1): 83–116.
17. Heckman, James J. (1976). A Life-Cycle Model of Earnings, Learning, and Consumption. J.P.E. 84, no. 4, pt. 2 (August): S9–S44.
18. Huggett, M. (1993). The risk-free rate in heterogeneous-agent incomplete-insurance economies. Journal of Economic Dynamics and Control, 17(5-6): 953–969.
19. Jacobs, B. and Bovenberg, L. (2010) Human capital and optimal positive taxation of capital income, International Tax and Public Finance, 17, 451–78
20. Jones, L., Manuelli, R., and Rossi, P. (1997) On the optimal taxation of capital income, Journal of Economic Theory, 73, 93–117
21. Judd, K. (1999). Optimal taxation and spending in general competitive growth models, Journal of Public Economics, 71, 1–26
22. Judd, K. L. (1985). Redistributive Taxation in a Simple Perfect Foresight Model. Journal of Public Economics, 28, 59-83.https://doi.org/10.1016/0047-2727(85)90020-9
23. Kapička, M. (2006) Optimal income taxation with human capital accumulation and limited record keeping, Review of Economic Dynamics, 9, 612–39.
24. Kapička,M.(2015). Optimal Mirrleesean Taxation in a Ben-Porath Economy, American Economic Journal: Macroeconomics, 7, issue 2, p. 219-48.
25. Klenow, Peter J., and Andrés Rodríguez-Clare. (1997). The Neoclassical Revival in Growth Economics: Has It Gone Too Far? In National Bureau of Economic Research Macroeconomics Annual1997. Vol. 12, edited by Ben S. Bernanke and Julio J. Rotemberg, 73–114. Cambridge: MIT Press
26. Kocherlakota, N. R. (2005). Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation. Econometrica, 73(5), 1587–1621. http://www.jstor.org/stable/3598884
27. Lucas, Robert E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics 22 (1): 3–42.
28. Manuelli, R. E., & Seshadri, A. (2014). Human Capital and the Wealth of Nations. The American Economic Review, 104(9), 2736–2762. http://www.jstor.org/stable/43495331
29. Mirrlees, J. A. (1971). An exploration in the theory of optimal income taxation. Review of Economic Studies,38, 175–208.
30. Parente, Stephen L., and Edward C. Prescott. (2000). Barriers to Riches. Cambridge, MA: MIT Press
31. Ramsey, F. P. (1927). A Contribution to the Theory of Taxation. The Economic Journal, 37(145), 47–61. https://doi.org/10.2307/2222721
32. Reis, B. C. (2019). Optimal taxation with unobservable investment in human capital. Oxford Economic Papers. doi:10.1093/oep/gpz038
33. Saez, E. ,S. Stantcheva (2016). Generalized social marginal welfare weights for optimal tax theory. The American Economic Review, 106(1), pp.24-45.
34. Saez, E. ,S. Stantcheva (2016). Generalized social marginal welfare weights for optimal tax theory. The American Economic Review, 106(1), pp.24-45.
35. Saez,E.(2001).Using elasticities to derive optimal income tax rates, The Review of Economic Studies, 68(1), pp.205- 229.
36. Schultz, T. W. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1–17. http://www.jstor.org/stable/1818907
37. Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513
38. Stantcheva, S.(2017). Optimal Taxation and Human Capital Policies over the Life Cycle, Journal of Political Economy 125, 1931–90.
39. Stantcheva,S. (2015). Learning and (or) Doing: Human Capital Investments and Optimal Taxation, NBER Working Papers 21381, National Bureau of Economic Research, Inc.
40. Trostel, P. A. (1993). The Effect of Taxation on Human Capital. Journal of Political Economy, 101(2), 327–350. http://www.jstor.org/stable/2138822
41. Werning,I.(2007).Pareto efficient income taxation. NBER Public Economics meeting
Published
2025-05-21
Section
Articles
