14th journées Louis-André Gérard-Varet

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Optimal Education Policies and Income Tax Progressivity when Abilities Are Endogenous
Marion Davin, Sylvain Dessy, Safa Ragued

Last modified: 2015-03-15

Abstract


We quantitatively determine the optimal fiscal and education policy, using a model of

household investment in college education. We first calibrate our model to match data for the Canadian

Province of Ontario, then use the calibrated model to gauge the optimal policy mix. Our results suggest

that equalization of opportunities (improving access to education) and equalization of outcomes (more

equal distribution of income) are reconcilable objectives of public policy. On the one hand, equalization of

opportunities requires more public investment to expand access to education and better prepare children

for future college education where they can earn higher incomes upon graduation. Equalization of outcomes

through progressive income taxation, on the other hand, acts as a mechanism through which those who

benefit from college education are also those who must contribute the most for its public financing.


Keywords


Optimal policy, Education, Income tax