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Tax Policy and Returns to Education

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  • Alison L. Booth
  • Melvyn B. Coles

Abstract

This paper considers how asymmetric tax treatment, where labour market earnings are taxed but household production is untaxed, aspects educational choice and labour supply. We show that taxes on labour market earnings can generate a large (non-marginal) switch to home production and the ensuing deadweight losses are large. Using a cross-country panel, we find that gender differences in labour supply responses to tax policy can explain differences in aggregate labour supply and years of education across countries.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 591.

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Date of creation: Dec 2008
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Handle: RePEc:auu:dpaper:591

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Keywords: Increasing returns; tax policy; gender; labour supply; education;

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References

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  1. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
  2. Booth, Alison L. & Coles, Melvyn, 2007. "A microfoundation for increasing returns in human capital accumulation and the under-participation trap," European Economic Review, Elsevier, vol. 51(7), pages 1661-1681, October.
  3. Alesina, Alberto F & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," CEPR Discussion Papers 6591, C.E.P.R. Discussion Papers.
  4. Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, 05.
  5. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  6. Apps, P. F. & Rees, R., 1996. "Labour supply, household production and intra-family welfare distribution," Journal of Public Economics, Elsevier, vol. 60(2), pages 199-219, May.
  7. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
  8. Trostel, P. & Walker, I., 2000. "Education and Work," The Warwick Economics Research Paper Series (TWERPS) 554, University of Warwick, Department of Economics.
  9. Alison Booth & Melvyn Coles, 2010. "Education, Matching, and the Allocative Value of Romance," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 744-775, 06.
  10. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
  11. Rios-Rull, Jose-Victor, 1993. "Working in the Market, Working at Home, and the Acquisition of Skills: A General-Equilibrium Approach," American Economic Review, American Economic Association, vol. 83(4), pages 893-907, September.
  12. repec:dgr:uvatin:2005036 is not listed on IDEAS
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Cited by:
  1. Booth, Alison L. & van Ours, Jan C., 2010. "Part-Time Jobs: What Women Want?," CEPR Discussion Papers 7627, C.E.P.R. Discussion Papers.
  2. CREMER, Helmuth & PESTIEAU, Pierre & RACIONERO, Mario, . "Unequal wages for equal utilities," CORE Discussion Papers RP -2369, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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