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Efficient Progressive Taxes and Education Subsidies

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Author Info

  • Casper van Ewijk

    ()
    (University of Amsterdam and CPB)

  • Paul Tang

    (CPB)

Abstract

Progressive income taxes moderate wage demands by trade unions and thereby reduce unemployment, but alsothey reduce incentives to acquire skills and lower productivity of workers. The optimal response of the governmentto this dilemma is to choose a system of progressive taxes and to (partly) subsidise investment in human capital. Acombination of generous education subsidies and steep tax rates is more likely to prevail the larger the power oftrade unions to set wages, the better the ability of the government to steer private efforts to educate, and thehigher the preference for equality between the employed and the unemployed. An empirical analysis for severalOECD countries gives similar results. A policy mix of high education subsidies and relatively progressive incometaxes is found in countries where union membership is significant and the replacement rate is high.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-002/2.

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Date of creation: 15 Jan 2001
Date of revision:
Handle: RePEc:dgr:uvatin:20010002

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Web page: http://www.tinbergen.nl

Related research

Keywords: employment; trade unions; human capital accumulation; optimal progression of income taxes; education subsidies;

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Cited by:
  1. Bovenberg, A.L. & Jacobs, B., 2001. "Redistribution and Education Subsidies are Siamese Twins," Discussion Paper 2001-82, Tilburg University, Center for Economic Research.
  2. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.
  3. Bas Jacobs, 2002. "An investigation of education finance reform; graduate taxes and income contingent loans in the Netherlands," CPB Discussion Paper 9, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Robert Dur & Coen Teulings, 2003. "Are education subsides an efficient redistributive device?," LSE Research Online Documents on Economics 19493, London School of Economics and Political Science, LSE Library.
  5. Ruud A. De Mooij & Bas Jacobs & Kees Folmer, 2007. "Analyzing a Flat Income Tax in the Netherlands," CESifo Working Paper Series 1890, CESifo Group Munich.
  6. Hungerbuhler, Mathias, 2007. "Tax progression and training in a matching framework," Labour Economics, Elsevier, vol. 14(2), pages 185-200, April.
  7. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy.

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