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Income Tax, Consumption Value of Education, and the Choice of Educational Type

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  • Annette Alstadsæter

Abstract

How the tax system might affect the individual’s educational level is well studied. But the question of how the tax system affects the individual’s choice of educational type is mostly ignored. This is an important issue, since the educational choice of today’s young generation determines the skill composition of tomorrow’s labor force and hence the future production possibilities of the country. This paper studies the problem in a partial model. A progressive tax system might in fact introduce distortions in the individuals’s educational choice and induce him to choose more of the educational type with the higher consumption value. If he also puts more weight on the present than on the future, this effect is strengthened further.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1055.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1055

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  1. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 63(3), pages 311-329, February.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  3. Lazear, Edward P, 1977. "Education: Consumption or Production?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 569-97, June.
  4. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  5. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
  6. Fredriksson, Peter, 1997. " Economic Incentives and the Demand for Higher Education," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 99(1), pages 129-42, March.
  7. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(2), pages 327-50, April.
  8. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & von Weizsacker, Robert K., 1993. "Comprehensive income taxation, investments in human and physical capital, and productivity," Journal of Public Economics, Elsevier, Elsevier, vol. 50(3), pages 397-406, March.
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Cited by:
  1. Lari Arthur Viianto, 2007. "On the positive effects of taxation on education," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2007-30, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Annette Alstadsæter & Ann-Sofie Kolm & Birthe Larsen, 2005. "Tax Effects, Search Unemployment, and the Choice of Educational Type," CESifo Working Paper Series 1622, CESifo Group Munich.
  3. Alstadsí¦ter, Annette & Kolm, Ann-Sofie & Larsen, Birthe, 2008. "Money or joy: The choice of educational type," European Journal of Political Economy, Elsevier, Elsevier, vol. 24(1), pages 107-122, March.
  4. Robert Dur & Amihai Glazer, 2005. "Subsidizing Enjoyable Education," Tinbergen Institute Discussion Papers, Tinbergen Institute 05-010/1, Tinbergen Institute, revised 29 Aug 2007.
  5. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers, The Research Institute of the Finnish Economy 906, The Research Institute of the Finnish Economy.

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