Tax Progression and Human Capital in Imperfect Labour Markets
AbstractRecent contributions to the theory of taxation argue that tax progression raises welfare and employment in the presence of labour market imperfections. This literature takes the endowment of workers with human capital as given. The present paper analyses the effects of tax progression in a model with endogenous human capital formation. We show that the effect of tax progression on human capital investment depends on the deductibility of the cost of human capital formation. With full deductibility, tax progression raises employment and welfare. With incomplete deductibility, in contrast, the effect of tax progression on employment and welfare may be negative. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.
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Bibliographic InfoArticle provided by Verein für Socialpolitik in its journal German Economic Review.
Volume (Year): 2 (2001)
Issue (Month): 1 (02)
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- Clemens Fuest & Bernd Huber, . "Tax Progression and Human Capital in Imperfect Labour Markets," EPRU Working Paper Series 98-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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