Optimal Wage Taxation When Human Capital And Employment Are Endogenous
Abstract"This paper studies how optimal wage tax conclusions from the classic two-period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. A combination of wage taxes and wage subsidies can restore proper price signals. Numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates. "("JEL "H21, H3, J24) Copyright (c) 2007 Western Economic Association International.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 46 (2008)
Issue (Month): 4 (October)
Contact details of provider:
Postal: 18830 Brookhurst Street, Suite 304, Fountain Valley, CA 92708 USA
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0095-2583
More information through EDIRC
Other versions of this item:
- Kreider, Brent, 2008. "Optimal Wage Taxation When Human Capital and Employment Are Endogenous," Staff General Research Papers 12358, Iowa State University, Department of Economics.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
- David Card & Alan Krueger, 1990.
"Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States,"
NBER Working Papers
3358, National Bureau of Economic Research, Inc.
- Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
- David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..
- Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- James Davies & John Whalley, 1991.
"Taxes and Capital Formation: How Important is Human Capital?,"
in: National Saving and Economic Performance, pages 163-200
National Bureau of Economic Research, Inc.
- James Davies & John Whalley, 1989. "Taxes and Capital Formation: How Important is Human Capital?," NBER Working Papers 2899, National Bureau of Economic Research, Inc.
- Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-88, June.
- B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2.
- Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, vol. 56(2), pages 291-310, February.
- Brown, Eleanor & Kaufold, Howard, 1988. "Human Capital Accumulation and the Optimal Level of Unemployment Insurance Provision," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 493-514, October.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
- Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
- Robert H. Haveman & Barbara L. Wolfe, 1984. "Schooling and Economic Well-Being: The Role of Nonmarket Effects," Journal of Human Resources, University of Wisconsin Press, vol. 19(3), pages 377-407.
- Lin, Shuanglin, 1998. "Labor income taxation and human capital accumulation," Journal of Public Economics, Elsevier, vol. 68(2), pages 291-302, May.
- Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
- Poutvaara, Panu, 2001. "Alternative tax constitutions and risky education in a federation," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 355-377, April.
- Snow, Arthur & Warren, Ronald S, Jr, 1990. "Human Capital Investment and Labor Supply under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 195-206, February.
- repec:pri:indrel:497 is not listed on IDEAS
- Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
- Scholz, John Karl, 1996. "In-Work Benefits in the United States: The Earned Income Tax Credit," Economic Journal, Royal Economic Society, vol. 106(434), pages 156-69, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.