Using Human Capital Theory to Establish a Potential Income Tax

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Using Human Capital Theory to Establish a Potential Income Tax

Author Info

Dagney Faulk
Jorge Martinez-Vazquez () (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)
Sally Wallace () (Andrew Young School of Policy Studies, Georgia State University)

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Jorge Martinez-Vazquez

Abstract

There are good arguments for an individual income tax on “potential income”, but the drawback to such a tax is the significant administrative concern regarding the implementation of the tax. This paper argues that human capital theory provides a widely accepted and straightforward method to estimate “potential income” using observed characteristics of individuals, and operationalizes this approach using data for the U.S.A. The paper also suggests that a “potential income tax” is very similar to a “presumptive income tax.” The paper concludes by reviewing some significant problems with the implementation of a potential/presumptive income tax.

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Publisher Info
Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0710.

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Length: 32 pages
Date of creation: 01 Jun 2007
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Handle: RePEc:ays:ispwps:paper0710

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Article
- Dagney Faulk & Jorge Martinez-Vazquez & Sally Wallace, 2007. "Using Human-Capital Theory to Establish a Potential-Income Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 415-435, September. [Downloadable!] (restricted)

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-01-05 (All new papers)
NEP-HRM-2008-01-05 (Human Capital & Human Resource Management)
NEP-PBE-2008-01-05 (Public Economics)
NEP-PUB-2008-01-05 (Public Finance)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Plug, Erik J. S. & van Praag, Bernard M. S. & Hartog, Joop, 1999. "If we knew ability, how would we tax individuals?," Journal of Public Economics, Elsevier, vol. 72(2), pages 183-211, May. [Downloadable!] (restricted)
Casey B. Mulligan & Xavier Sala-i-Martin, 1994. "A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States," Economics Working Papers 106, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1994. [Downloadable!]
Other versions:
- Mulligan, Casey B & Sala-i-Martin, Xavier, 1995. "A Labour-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States," CEPR Discussion Papers 1146, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Casey B. Mulligan & Xavier Sala-i-Martin, 1995. "A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States," NBER Working Papers 5018, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Mulligan, C. B. & Sala-i-Martin, X., 1997. "A labor income-based measure of the value of human capital: An application to the states of the United States," Japan and the World Economy, Elsevier, vol. 9(2), pages 159-191, May. [Downloadable!] (restricted)
Richard M. Bird & Sally Wallace, 2003. "Is It Really so Hard to Tax the Hard-to-Tax? The Context and Role of Presumptive Taxes," International Tax Program Papers 0307, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto. [Downloadable!]
Allingham, M. G., 1975. "Towards an ability tax," Journal of Public Economics, Elsevier, vol. 4(4), pages 361-376, November. [Downloadable!] (restricted)
Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 175-208, April. [Downloadable!] (restricted)
Judd, Kenneth L, 1998. "Taxes, Uncertainty, and Human Capital," American Economic Review, American Economic Association, vol. 88(2), pages 289-92, May. [Downloadable!] (restricted)

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