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Byline: DANIEL GOTTLIEB(1), HUMBERTO MOREIRA(2)
In this paper, we study optimal educational policies when the
ability to benefit from education is private information. We extend the
framework of De Fraja (2002) in two directions. First, we replace his
specification of the government's budget constraint, which prevents
the government to use tax revenues from an older generation to subsidize
the education of a younger generation, by the usual one. We show that
the optimal educational policies achieve the first best, are not
regressive, and can be decentralized through Pigouvian taxes and credit
provision. Second, we consider utility functions that are not
quasi-linear. In this case, we show that the first best can no longer be
reached, education may not be monotonic in ability, and progressivities
of education are locally welfare-improving.
(1)Wharton School, University of Pennsylvania
(2)Graduate School of Economics, Getulio Vargas Foundation
Daniel Gottlieb, Wharton School, University of Pennsylvania, 3620
Locust Walk, Philadelphia, PA 19104 (e-mail: firstname.lastname@example.org).
Humberto Moreira, Graduate School of Economics, Getulio Vargas
Foundation, Praia de Botafogo 190, Rio de Janeiro, RJ, Brazil 22253-900.
We thank Luis Braido, Carlos da Costa, Daniel Ferreira, Andrew
Horowitz, Rodrigo Soares, Thierry Verdier, an associate editor, and
especially Antoine Bommier, Pierre Dubois, James Poterba, and Myrna
Wooders (editor) for helpful comments and suggestions.
Received December 17, 2009; Accepted October 21, 2010.