Essays on inequality and human capital

Abstract

This dissertation contributes to the current understanding of human capital and its importance for earnings inequality and taxation. Human capital is typically defined as the stock of knowledge or skills acquired through education and working experience. The first chapter analyzes student borrowing behaviors in postsecondary education in the United States, the second chapter studies cross-country differences in earnings inequality within an endogenous growth model of human capital accumulation, and the third chapter examines the impact of endogenous human capital formations over a life-cycle on optimal fiscal policy. In Chapter 1, I document that new federal student loans for higher education in the United States have risen more than 5 times over the past 20 years. What caused this dramatic increase? I develop a heterogeneous life-cycle model of human capital accumulation to analyze individual college and borrowing decisions. Using this framework, I assess the quantitative contributions of changes in the college wage premium, college costs, maximum borrowing limits, and loan interest rates to explain the significant rise of federal student loans. I find that the calibrated model accounts for 57 percent of the actual increase in loans from 1990 to 2011. Increases in the college wage premium and college costs are important factors in generating the sharp rise in loans and, particularly, the increase in the fraction of borrowers and borrowing amounts. The expansion of credit availability and decreased loan interest rates have a relatively minimal impact on individual college and borrowing decisions.