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Income Taxation, Tuition Subsidies, and Choice of Occupation: Implications for Production Efficiency

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  • Geir Haakon Bjertnæs

Abstract

The desirability for production efficiency is re-examined in this study, where agents choose occupation based on lifetime income net of tuition costs. Efficient revenue raising implies that the government should trade off efficiency in production for efficiency in intertemporal consumption, as capital income is taxed in optimum. The subsequent wage difference between high- and low-skilled occupations is increased compared to a production efficient outcome, which is in contrast to previous results in the literature.

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  • Geir Haakon Bjertnæs, 2005. "Income Taxation, Tuition Subsidies, and Choice of Occupation: Implications for Production Efficiency," CESifo Working Paper Series 1627, CESifo.
    • Handle: RePEc:ces:ceswps:_1627
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    References listed on IDEAS

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    3. Geir Haakon Bjertnæs, 2001. "Optimal Combinations of Income Tax and Subsidies for Education," Discussion Papers 313, Statistics Norway, Research Department.
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    7. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
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    Keywords

    optimal income taxation; subsidies for tuition; skill formation; production efficiency;
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