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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- Bas Jacobs & Dirk Schindler & Hongyan Yang, 2012.
"Optimal Taxation of Risky Human Capital,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 114(3), pages 908-931, 09.
- 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.
- 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.
- Bas Jacobs & A. Lans Bovenberg, 2011.
"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.
- Alison L. Booth & Melvyn B. Coles, 2008.
"Tax Policy and Returns to Education,"
CEPR Discussion Papers
591, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- 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).
- Ho, Wai-Hong & Wang, Yong, 2009. "Capital Income Taxation Revisited: The Role of Information Asymmetry in the Credit Market," MPRA Paper 17040, 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.
- 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).
- C. Mendolicchio & D. Paolini & T. Pietra, 2010.
"Income taxes, subsidies to education, and investments in human capital,"
701, Dipartimento Scienze Economiche, Universita' di Bologna.
- Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2011. "Income taxes, subsidies to education, and investments in human capital," IAB Discussion Paper 201107, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, 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, 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.
- Bas Jacobs, 2008. "Is Prescott Right? Welfare State Policies and the Incentives to Work, Learn and Retire," CESifo Working Paper Series 2277, CESifo Group Munich.
- 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.
- Bas Jacobs & Hongyan Yang, 2013. "Second-Best Income Taxation with Endogenous Human Capital and Borrowing Constraints," CESifo Working Paper Series 4155, CESifo Group Munich.
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