Optimal Income Taxation with Endogenous Human Capital
AbstractThis paper augments the theory of optimal linear income taxation by taking into account human capital accumulation as a dimension of labor supply. The distribution of earning potentials is endogenous because agents differ in the ability to learn. Taxation affects utilization rates of human capital through labor supply responses. The costs of education that are not deductible from the income tax distort the learning decision as well. We show theoretically that the trade-off between efficiency and equity is worsened. Quantitative analysis shows that the distortionary costs of taxation increase substantially when human capital formation is endogenous. Copyright 2005 Blackwell Publishing Inc..
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Bibliographic InfoArticle provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.
Volume (Year): 7 (2005)
Issue (Month): 2 (05)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923
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Other versions of this item:
- Bas Jacobs, 2002. "Optimal Income Taxation with Endogenous Human Capital," Tinbergen Institute Discussion Papers 02-045/2, Tinbergen Institute.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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- MENDOLICCHIO, Concetta & PAOLINI, Dimitri & PIETRA, Tito, 2012.
"Asymmetric information and overeducation,"
CORE Discussion Papers
2012021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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"Optimal Taxation of Human Capital and the Earnings Function,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
- Bas Jacobs & Lans Bovenberg, 2008. "Optimal Taxation of Human Capital and theEarnings Function," CESifo Working Paper Series 2250, CESifo Group Munich.
- Bas Jacobs, 2009.
"Is Prescott right? Welfare state policies and the incentives to work, learn, and retire,"
International Tax and Public Finance,
Springer, vol. 16(2), pages 253-280, April.
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"Income taxes, subsidies to education, and investments in human capital,"
701, Dipartimento Scienze Economiche, Universita' di Bologna.
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- Tim Lohse & Peter Lutz & Christian Thomann, 2013. "Redistributional consequences of early childhood intervention," The European Journal of Health Economics, Springer, vol. 14(3), pages 373-381, June.
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CESifo Working Paper Series
2529, CESifo Group Munich.
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07-029/3, Tinbergen Institute.
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Elsevier, vol. 17(1), pages 291-301, January.
- CREMER, Helmuth & PESTIEAU, Pierre, 2004. "The tax treatment of intergenerational wealth transfers," CORE Discussion Papers 2004062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2009. "Income tax, subsidies to education, and investments in human capital in a two-sector economy," MPRA Paper 14772, University Library of Munich, Germany.
- Bas Jacobs & Ruud A. de Mooij & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," Tinbergen Institute Discussion Papers 07-029/3, Tinbergen Institute.
- Bas Jacobs & Hongyan Yang, 2013. "Second-Best Income Taxation with Endogenous Human Capital and Borrowing Constraints," CESifo Working Paper Series 4155, CESifo Group Munich.
- Schindler, Dirk, 2008. "Human Capital, Multiple Income Risk and Social Insurance," Discussion Papers 2008/18, Department of Business and Management Science, Norwegian School of Economics.
- Ho, Wai-Hong & Wang, Yong, 2007. "Factor income taxation and growth under asymmetric information," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 775-789, April.
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