TY  - RPRT
        AU  - Koeniger, Winfried
AU  - Prat, Julien
        TI  - Human Capital and Optimal Redistribution
        PY  - 2014/Nov/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 8666
        UR  - https://www.iza.org/index.php/publications/dp8666
        AB  - We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge differs from the wedge for bequests because human capital carries risk: its returns depend on the non-diversifiable risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
        KW  - optimal taxation
KW  - human capital
        ER  -