This paper analyzes optimal linear taxes on capital and labour incomes in a life-cycle model of human capital investment, financial savings, and labour supply with heterogenous individuals. A dual income tax with a positive marginal tax rate on not only labour income but also capital income is...

We develop a model of human capital formation with endogenous labour supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labour income tax and optimal capital income taxes. Subsidies on education ensure efficiency...

Adding generous government supplied benefits to Prescott's (2002) model with employment lotteries and private consumption insurance causes employment to implode and prevents the model from matching outcomes observed in Europe. To understand the role of a 'not-so-well-known aggregation theory'...

An incomplete markets life-cycle model with indivisible labour makes career lengths and human capital accumulation respond to labour tax rates and government supplied non-employment benefits. We compare aggregate and individual outcomes in this individualistic incomplete markets model with those...