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Efficient Consolidation of Incentives for Education and Retirement Savings

  • Radoslaw Paluszynski
  • Pei Cheng Yu
American Economic Journal: Macroeconomics
vol. 15, no. 3, July 2023
(pp. 153-90)
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Abstract

We study optimal tax policies with human capital investment and retirement savings for present-biased agents. Agents are heterogeneous in their innate ability and make risky education investments, which determines their labor productivity. We demonstrate that the optimal distortions vary with education status. In particular, the optimal policy encourages human capital investment with savings incentives. Our implementation uses income-contingent student loans and existing retirement policies, augmented by a new tax instrument that subsidizes retirement savings for college graduates. The instrument mimics the latest policy proposals by allowing employers to offer 401(k) matching contributions proportional to student loans repayment.

Citation

Paluszynski, Radoslaw, and Pei Cheng Yu. 2023. "Efficient Consolidation of Incentives for Education and Retirement Savings." American Economic Journal: Macroeconomics, 15 (3): 153-90. DOI: 10.1257/mac.20200181

Additional Materials

JEL Classification

  • G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
  • H21 Taxation and Subsidies: Efficiency; Optimal Taxation
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • I26 Returns to Education
  • J24 Human Capital; Skills; Occupational Choice; Labor Productivity
  • J26 Retirement; Retirement Policies
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