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Tax Policy and Returns to Education

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Author Info
Alison L. Booth
Melvyn B. Coles

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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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Publisher Info
Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, 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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Related research
Keywords: Increasing returns; tax policy; gender; labour supply; education;

Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
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
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
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  2. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December. [Downloadable!] (restricted)
    Other versions:
  3. Booth, Alison L & Coles, Melvyn G, 2005. "Education, Matching and the Allocative Value of Romance," CEPR Discussion Papers 5099, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Apps, Patricia, 2003. "Gender, Time Use and Models of the Household," IZA Discussion Papers 796, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Michael Burda & Daniel S. Hamermesh & Philippe Weil, 2007. "Total Work, Gender and Social Norms," SFB 649 Discussion Papers SFB649DP2007-058, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  8. 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. [Downloadable!] (restricted)
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  9. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281. [Downloadable!] (restricted)
  10. Apps, Patricia F. & Rees, Ray, 1997. "Individual vs. Joint Taxation in Models with Household Production," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
  11. Philip Trostel & Ian Walker, 2006. "Education and Work," Education Economics, Taylor and Francis Journals, vol. 14(4), pages 377-399, December. [Downloadable!] (restricted)
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  12. Pierre-Andre Chiappori & Yoram Weiss & Murat Iyigun & Yoram Weiss, 2006. "Investment in Schooling and the Marriage Market," 2006 Meeting Papers 43, Society for Economic Dynamics. [Downloadable!]
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  13. 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. [Downloadable!] (restricted)
  14. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January. [Downloadable!] (restricted)
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