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Taxing Education in Ramsey's Tradition

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  • Wolfram F. Richter

Abstract

Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient to deviate from Ramsey’s Rule and to distort qualified labour less than nonqualified labour. The result holds for arbitrary utility and learning functions. Efficient incentives for education and saving are analysed under conditions of second and third best. It is argued that efficient tax policy should care more about incentives for education than for saving.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2586.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2586

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Keywords: endogenous choice of education; labour; and saving; second-best efficient taxation; Power of Law of Learning;

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References

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  1. Berthold U. Wigger, 2004. "Are Higher Education Subsidies Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 106(1), pages 65-82, 03.
  2. Wolfram F. Richter, 2006. "Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-qualified Labour more Heavily than Qualified Labour," CESifo Working Paper Series, CESifo Group Munich 1832, CESifo Group Munich.
  3. Costa, Carlos Eugênio da & Maestri, Lucas Jóver, 2004. "The risk-properties of human capital and the design of government policies," Economics Working Papers (Ensaios Economicos da EPGE) 554, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. 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.
  5. Andersson, Fredrik & Konrad, Kai A., 2002. "Human capital investment and globalization in extortionary states," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) FS IV 02-01, Social Science Research Center Berlin (WZB).
  6. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, Elsevier, vol. 93(11-12), pages 1254-1260, December.
  7. Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, Elsevier, vol. 93(9-10), pages 1017-1026, October.
  8. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521873161.
  9. Bas Jacobs & Lans Bovenberg, 2008. "Optimal Taxation of Human Capital and theEarnings Function," CESifo Working Paper Series, CESifo Group Munich 2250, CESifo Group Munich.
  10. Richter, Wolfram F., 2008. "Efficient Tax Policy Ranks Education Higher Than Saving," IZA Discussion Papers 3451, Institute for the Study of Labor (IZA).
  11. Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer, Springer, vol. 17(5), pages 451-478, October.
  12. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  13. Richter, Wolfram F. & Braun, Christoph, 2009. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," IZA Discussion Papers 4629, Institute for the Study of Labor (IZA).
  14. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, Elsevier, vol. 73(1), pages 93-117, March.
  15. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2009. "Human Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521117562.
  16. Boadway, R. & Marceau, N. & Marchand, M., . "Investment in education and the time inconsistency of redistributive tax policy," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1219, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. 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.
  18. Bovenberg, A.L. & Jacobs, B., 2001. "Redistribution and Education Subsidies are Siamese Twins," Discussion Paper, Tilburg University, Center for Economic Research 2001-82, Tilburg University, Center for Economic Research.
  19. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 64(4), pages 701-06, September.
  20. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
  21. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, Elsevier, vol. 1(1), pages 97-119, April.
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Citations

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Cited by:
  1. Wolfram F. Richter, 2010. "Efficient Education Policy - A Second-Order Elasticity Rule," CESifo Working Paper Series, CESifo Group Munich 2969, CESifo Group Munich.
  2. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0140, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. repec:got:cegedp:137 is not listed on IDEAS
  4. Richter, Wolfram F. & Braun, Christoph, 2009. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," IZA Discussion Papers 4629, Institute for the Study of Labor (IZA).
  5. Wolfram F. Richter & Lars Kunze, 2011. "Taxing Human Capital Efficiently when Qualified Labour is Mobile," CESifo Working Paper Series, CESifo Group Munich 3366, CESifo Group Munich.
  6. Richter, Wolfram F., 2013. "Mincer Equation, Power Law of Learning, and Efficient Education Policy," IZA Discussion Papers 7280, Institute for the Study of Labor (IZA).
  7. Wolfram F. Richter & Berthold U. Wigger, 2012. "Besteuerung des Humanvermögens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 13(1-2), pages 82-102, 02.
  8. Findeisen, Sebastian & Sachs, Dominik, 2014. "Education Policies and Taxation without Commitment," Working Papers, University of Mannheim, Department of Economics 14-16, University of Mannheim, Department of Economics.
  9. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers, University of Goettingen, Department of Economics 137, University of Goettingen, Department of Economics.

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