Essays in Public Economics

Abstract

This dissertation is comprised of three separate chapters that study the optimal

design of different government policies. In the first chapter, which is joint work

with Christian Moser, I study the optimal design of retirement savings policies and how under-saving for retirement can be dealt with by the government when there is also considerable income inequality in the economy. I find that a redistributive government would find it optimal to provide more flexibility on savings of higher earners, thorugh the usage of special retirement savings accounts (401(k)s), and this government would find it optimal to offer social security benefits to make sure low earners have sufficient resources during

retirement. In the second chapter, I study the optimal design of labor income taxes when there is advance information about the unobservable heterogeneity in labor earnings ability into the future. I find that the standard optimal taxation results are greatly affected, and in particular top income tax rates can differ significantly if the Pareto tail of the distribution of labor earnings ability differs across workers with different expectations. I find in the data from the Survey of Consumer Finances that there are significant differences on the Pareto tail of the distribution of earnings ability across different educational levels. Therefore, optimal income taxes across those groups differ significantly. Finally, in the third chapter, which is joint work with Michael Sockin, I study the optimal design of subsidies to higher education. I find that the optimal subsidy level satisfies a simple formula that depends on three key components: the redistributive motive;

the extensive margin elasticity of education attainment with respect to the cost of education; and the elasticity of aggregate labor supply with respect to the cost of education.