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Optimal Income Taxation with Human Capital Accumulation and Limited Record Keeping Author info | Abstract | Publisher info | Download info | Related research | Statistics Marek Kapicka (University of California, Santa Barbara)
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This paper characterizes optimal income taxes in a dynamic economy where human capital is unobservable and the government is restricted to use taxes that depend only on current income. I show that unobservability of human capital tends to decrease the labor wedge, while the effect on the human capital wedge is uncertain. I also analyze the relationship between optimal taxes in economies with and without endogenous human capital and identify two qualitative reasons why the optimal tax codes will differ. I perform numerical simulations to calculate the quantitative relevance of endogenous human capital formation for optimal tax policy. I find that endogenous human capital lowers marginal tax rates by about 9% on average, as compared with a static model without human capital. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics .
Volume (Year): 9 (2006)
Issue (Month): 4 (October)
Pages: 612-639
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Handle: RePEc:red:issued:05-24Contact details of provider: Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/review.htm More information through EDIRC
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Keywords: Optimal taxation ; Income taxation ; Human capital ; Other versions of this item:
Find related papers by JEL classification: E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook H2 - Public Economics - - Taxation, Subsidies, and Revenue
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Borys Grochulski & Tomasz Piskorski, 2007.
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