This paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC … effects due to wage-(de)compression, and iii) education distortions. Analytically, the effect of SBTC on these three … distributional losses, and it increases education distortions. Also, SBTC lowers optimal education subsidies, since SBTC generates …

) in which the human capital defined as the individual's skill level acquired through formal education and learning by … (lack of piety). Practical implications The study recommends some policies such as providing formal religious education at …

optimal level of education subsidies along with the optimal schedule of the labor income tax. If the government can observe … inputs into the production of human capital, subsidies on education ensure efficiency in human capital accumulation and labor … taxes are more progressive than without education policies. Although the able benefit more than proportionally from …