Abstract:
Time inconsistency of tax policy is shown to arise in a setting in which households differ in their ability to accumulate wealth and the government has redistributional objectives. The government can levy non-distorting taxes but is precluded from redistributing optimally by a self-selection constraint. The analysis is done for the case in which all wealth is human capital, and education is a private good. An argument can be made for public intervention in the provision of education.
