Government Policies and Human Capital Formation with Endogenous Credit Constraints

Northwestern University, Evanston IL

Investigators

Abstract

This research designs and examines models in which credit constraints arise endogenously due to imperfect enforcement, and considers the consequences it has for life-cycle behavior of consumption, labor supply and investment in human and physical capital. The endogeneity of the constraints allows the models to capture the response of private markets to the policies of the government. The policies examined include taxation of labor and capital income, education subsidies, public provision of schooling, and social security. The research also analyzes changes in the institutional framework of private creditor markets, and examines the existing Guaranteed Student Loan Program . It is expected that insights and findings from the research will be used for evaluating, and suggesting possible improvements in the current student loan programs in the United States. It is important to understand how the Guaranteed Student Loan Program affects incentives to invest in human capital, interacts with credit markets, and generates incentives to default. More efficient loan programs may be possible, and can only be found by understanding the origins of credit constraints.