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Taxation And Human Capital Accumulation

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  • HENDRICKS, LUTZ

Abstract

How do taxes affect human capital accumulation? This question has been studied extensively in the context of two model classes: overlapping generations (OLG) and infinite horizon (IH). These embody very different assumptions about the intergenerational transmission of physical and human capital. This paper investigates how such differences in intercohort persistence affect the responsiveness of human capital to taxation. A model is developed that nests OLG and IH models as special cases. The steady-state and transitional effects of tax changes are computed for varying degrees of persistence. The main finding is that stronger intercohort persistence magnifies the impact of taxation on human capital and leads to slower transitional dynamics. As a result, IH models generate systematically larger tax effects than OLG models. For the tax experiments studied here, models with complete persistence generate steady-state tax elasticities at least two times larger and transitional half-lives at least three times longer than do models without persistence.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 8 (2004)
Issue (Month): 03 (June)
Pages: 310-334

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Handle: RePEc:cup:macdyn:v:8:y:2004:i:03:p:310-334_03

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Cited by:
  1. Long Xin & Pelloni Alessandra, 2011. "Welfare improving taxation on saving in a growth model," wp.comunite 0071, Department of Communication, University of Teramo.
  2. Igor Kotlán & Zuzana Machová, 2012. "The Influence of Corporate Taxation on Economic Growth: The Failure of Tax Quota?," Politická ekonomie, University of Economics, Prague, vol. 2012(6), pages 743-763.
  3. Igor Kotlán & Zuzana Machová & Lenka Janíčková, 2011. "Taxation Influence on the Economic Growth," Politická ekonomie, University of Economics, Prague, vol. 2011(5), pages 638-658.
  4. Lutz Hendricks, 2000. "Do Redistributive Policies Promote Intergenerational Mobility?," Econometric Society World Congress 2000 Contributed Papers 0607, Econometric Society.

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