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Redistribution and Education Subsidies are Siamese Twins

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Author Info
Bovenberg, A Lans
Jacobs, Bas

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Abstract

We develop a model of human capital formation with endogenous labour supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labour income tax and optimal capital income taxes. Subsidies on education ensure efficiency in human capital accumulation, while taxes on skilled labour help to redistribute income towards the less able. We thus provide a rationale for the widely observed presence of education subsidies. The actually observed tax codes and level of education subsidies suggest that a large part of education subsidies can be justified on these grounds.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3099.

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Date of creation: Dec 2001
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Handle: RePEc:cpr:ceprdp:3099

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Related research
Keywords: education subsidies; human capital; progressive taxation;

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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
I20 - Health, Education, and Welfare - - Education - - - General
J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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