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Tax Effects, Search Unemployment, and the Choice of Educational Type

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  • Annette Alstadsæter
  • Ann-Sofie Kolm
  • Birthe Larsen

Abstract

This paper examines the effect of taxes on the individuals’ choices of educational direction, and thus on the economy’s skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1622.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1622.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1622

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Related research

Keywords: unemployment; matching; education; optimal taxation; tuition fees;

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References

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  1. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
  2. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
  3. Annette Alstadsæter, 2003. "Income Tax, Consumption Value of Education, and the Choice of Educational Type," CESifo Working Paper Series 1055, CESifo Group Munich.
  4. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-83, October.
  5. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  6. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
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Cited by:
  1. Heijdra, B.J. & Ligthart, J.E., 2006. "The Transitional Dynamics of Fiscal Policy in Small Open Economies," Open Access publications from Tilburg University urn:nbn:nl:ui:12-199394, Tilburg University.
  2. Forges, Françoise & Koessler, Frédéric, 2008. "Long persuasion games," Journal of Economic Theory, Elsevier, vol. 143(1), pages 1-35, November.

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