Education Policies and Taxation without Commitment1. (3rd October 2018)

• Record Type: Journal Article
• Authors: Findeisen, Sebastian; Sachs, Dominik
• Is Part Of: Scandinavian journal of economics. Volume 120:Number 4(2018)
• Page Start: 1075
• Page End: 1099
• Publication Date: 2018-10-03
• Subjects: Inequality -- time inconsistency; Economics -- Periodicals; 330.05
• DOI: 10.1111/sjoe.12246
• Languages: English
• ISSNs: 0347-0520

Abstract

Abstract: We study the implications of limited commitment on education and tax policies set by benevolent governments. Consistent with real‐world practices, a government can decide to subsidize different levels of education at different rates. A lack of commitment, however, affects the optimal structure of education subsidies. The direction of the effect depends on how labor taxes are designed. With linear labor tax rates and a transfer for redistribution, subsidies become more progressive. By contrast, if the government is only constrained by informational asymmetries when designing taxes, subsidies become more regressive.