New Economics Papers
on Public Finance
Issue of 2011‒03‒19
two papers chosen by



  1. Income taxes, subsidies to education, and investments in human capital By Mendolicchio, Concetta; Paolini, Dimitri; Pietra, Tito
  2. The Potential Savings to Social Security from Means Testing By Dean Baker; Hye Jin Rho

  1. By: Mendolicchio, Concetta (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Paolini, Dimitri; Pietra, Tito
    Abstract: "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))
    JEL: J24 H2
    Date: 2011–03–07
    URL: http://d.repec.org/n?u=RePEc:iab:iabdpa:201107&r=pub
  2. By: Dean Baker; Hye Jin Rho
    Abstract: Many people in policy debates have argued that means testing, or reducing Social Security payments to affluent beneficiaries, can be an effective way to save money for the program and to reduce the federal budget deficit. This paper examines the feasibility of saving money through various types of means tests and suggests that is likely to be very limited unless the means test is applied to individuals who are very much middle class by any reasonable definition. The percentage of benefits that go to affluent seniors is too small to make very much difference to the program’s finances.
    Keywords: social security, retirement, means testing
    JEL: H H5 H55
    Date: 2011–03
    URL: http://d.repec.org/n?u=RePEc:epo:papers:2011-05&r=pub

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