Income tax, subsidies to education, and investments in human capital in a two-sector economy

The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select the sector they are active in, and choose the amount of their investments. To enter the high-skill sector, workers must pay a fixed cost that we interpret as direct cost of education. The economy is characterized by two different pecuniary externalities. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second pecuniary externality is induced by the self-selection of the agents in the two sectors. When total factor productivities are sufficiently diverse, subsidies to labor income in the low skill sector and fixed taxes on the direct costs of education increase total surplus, while subsidies to labor income in the high skill sector can actually reduce it.Human capital; Efficiency; Labour income tax

Investments in education and welfare in a two-sector, random matching economy

"We consider a random matching model where heterogeneous agents choose optimally to invest time and real resources in education. Generically, there is a steady state equilibrium, where some agents, but not all of them, invest. Regular steady state equilibria are constrained inefficient in a strong sense. The Hosios (1990) condition is neither necessary, nor sufficient, for constrained efficiency. We also provide restrictions on the fundamentals sufficient to guarantee that equilibria are characterized by overeducation (or undereducation), present some results on their comparative statics properties, and discuss the nature of welfare improving policies." (Author's abstract, IAB-Doku) ((en))Humankapital, Bildungsinvestitionen, matching, Arbeitskräfteangebot, Arbeitsmarktmodell, Arbeitsmarktgleichgewicht, Überqualifikation, Unterqualifikation

Income taxes, subsidies to education, and investments in human capital

"We study a two-sector economy with investments in human and physical capital and imperfect labor markets. Human and physical capital are heterogeneous. Workers and firms endogenously select the sector they are active in and choose the amount of their sector-specific investments. To enter the high-skill sector, workers must pay a fixed cost that we interpret as a direct cost of education. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second source of inefficiency is related to the self-selection of the agents into the two sectors: typically too many workers invest in education. Under suitable restrictions on the parameters, the joint effect of the two distortions is that equilibria are characterized by too many people investing too little effort in the high skill sector. We also analyze the welfare properties of equilibria and study the effects of several tax policies on the total expected surplus. In particular, consider the equilibrium associated with a flat labor income tax. Under suitable restrictions on the parameters, a revenue neutral progressive change in the marginal tax rates is welfare improving." (Author's abstract, IAB-Doku) ((en))Humankapital, Einkommensteuer, Lohnsteuer, Bildungsinvestitionen, Arbeitsmarktmodell, Marktunvollkommenheit, matching, Arbeitsmarktgleichgewicht, gesellschaftliche Wohlfahrt, Unterqualifikation, Steuerpolitik, Verteilungseffekte, Bildungsertrag, Einkommenseffekte

Welfare and excess volatility of exchange rates

We study the properties of a GEI model with nominal assets, outside money (injected into the economy as in Magill and Quinzii), and multiple currencies. We analyze the existence of monetary equilibria and the structure of the equilibrium set under two different assumptions on the determination of the exchange rates. If currencies are perfect substitutes, equilibrium allocations are indeterminate and, generically, sunspot equilibria exist. Generically, given a nonsunspot equilibrium, there are Pareto improving (and Pareto worsening) sunspot equilibria associated with an increase in the volatility of the future exchange rates. We interpret this property as showing that, in general, there is no clear-cut effect on welfare of the excess volatility of exchange rates, even when due to purely extrinsic phenomena

Human capital policies in a static, two-sector economy with imperfect markets

The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select (paying a fixed cost) the sector they are active in, and choose the amount of their investments. The economy is characterized by pecuniary externalities. Given the partition of the agents among the two sectors, at equilibrium there is underinvestment in both human and physical capital, as in Acemoglu (1996). A second externality is induced by the self-selection of the agents in the two sectors. When the difference between total factor productivities (TFP) is sufficiently large, subsidies to investments in education in the low TFP sector and fixed taxes increasing the cost to access the high productivity sector increase expected total surplus, while subsidies to investments in the high TFP sector can actually reduce it. To the contrary, subsidies to the amount of investments in human capital in the high TFP sector may have a positive effect on social welfare when the TFPs are sufficiently close

Investments in education and welfare in a two-sector, random matching economy

We consider a random matching model where heterogeneous agents choose optimally to invest time and real resources in education. Generically, there is a steady state equilibrium, where some agents, but not all of them, invest. Regular steady state equilibria are constrained inefficient in a strong sense. The Hosios (1990) condition is neither necessary, nor sufficient, for constrained efficiency. We also provide restrictions on the fundamentals sufficient to guarantee that equilibria are characterized by overeducation (or undereducation), present some results on their comparative statics properties, and discuss the nature of welfare improving policies

Income taxes, subsidies to education, and investments in human capital

We study a two-sector economy with investments in human and physical capital and imperfect labor markets. Human and physical capital are heterogeneous. Workers and firms endogenously select the sector they are active in, and choose the amount of their sector-specific investments in human and physical capital. To enter the high-skill sector, workers must pay a fixed cost that we interpret as direct cost of education. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second source of inefficiency is related to the self-selection of the agents into the two sectors. It typically induces too many workers to invest in education. Under suitable restrictions on the parameters, the joint effect of the two distortions is that equilibria are characterized by too many people investing too little effort in the high skill sector. We also analyze the welfare properties of equilibria and study the effects of several tax-subsidy policies on the total expected surplus

Investments in education and welfare in a two-sector, random matching economy

"Im Rahmen eines Matching-Modells wird die optimale Investitionsentscheidung heterogener Agenten in Humankapital untersucht. Generisch existiert ein Gleichgewicht, in dem einige, aber nicht alle Agenten investieren. Reguläre Steady-State-Gleichgewichte sind im starken Sinne beschränkt ineffizient. Die Hosios-Bedingung ist für beschränkte Effizienz weder notwendig noch hinreichend. Weiter zeigen wir Restriktionen auf, die hinreichend sind für die Existenz eines Gleichgewichts, das durch Über- oder Unterinvestition in Bildung gekennzeichnet ist. Schliess- lich diskutieren wir komparativ-statische Eigenschaften des Modells sowie wohlfahrtssteigernde Politikmassnahmen." (Autorenreferat)"We consider a random matching model where heterogeneous agents choose optimally to invest time and real resources in education. Generically, there is a steady state equilibrium, where some agents, but not all of them, invest. Regular steady state equilibria are constrained inefficient in a strong sense. The Hosios (1990) condition is neither necessary, nor sufficient, for constrained efficiency. We also provide restrictions on the fundamentals sufficient to guarantee that equilibria are characterized by overeducation (or undereducation), present some results on their comparative statics properties, and discuss the nature of welfare improving policies." (author's abstract

Income tax, subsidies to education, and investments in human capital in a two-sector economy

The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select the sector they are active in, and choose the amount of their investments. To enter the high-skill sector, workers must pay a fixed cost that we interpret as direct cost of education. The economy is characterized by two different pecuniary externalities. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second pecuniary externality is induced by the self-selection of the agents in the two sectors. When total factor productivities are sufficiently diverse, subsidies to labor income in the low skill sector and fixed taxes on the direct costs of education increase total surplus, while subsidies to labor income in the high skill sector can actually reduce it