This paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC). SBTC affects optimal taxes and subsidies by changing i) direct distributional benefits, ii) indirect redistributional effects due to wage-(de)compression, and iii) education...

This paper uses an overlapping generations framework to analyze the implications of different financing regimes in the education sector for human capital formation and economic welfare. Agents privately invest in education after they have received a noisy information signal about their...