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Endogenous Human Capital Accumulation, Comparative Advantage and Direct vs. Indirect Redistribution

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  • Hisahiro Naito

Abstract

Recently, several papers have re-examined the so-called production efficiency theorem and the Atkinson and Stiglitz theorem on commodity taxes in the optimal taxation literature. Naito (1999) showed that indirect redistribution through production distortion or consumption distortion can Pareto-improve welfare and that the two theorems do not necessarily hold when different factors are imperfect substitutes and factor prices are endogenous. On the other hand, Saez (2001) argued that in the long run where human capital accumulation is endogenous, the two theorems are still valid. This paper develops reasonable alternative models where individuals accumulate human capital based on their comparative advantage. The present paper shows that the production efficiency theorem is not necessarily valid and that indirect redistribution from the able to the less able such as tariffs and production subsidies can increase efficiency even when skill accumulation is endogenous.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0590.

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Date of creation: Jul 2003
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Handle: RePEc:dpr:wpaper:0590

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  1. DiNardo, John & Tobias, Justin, 2001. "Nonparametric Density and Regression Estimation," Staff General Research Papers 12020, Iowa State University, Department of Economics.
  2. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
  3. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Robin Boadway & Katherine Cuff, 1999. "A Minimum Wage Can Be Welfare-Improving and Employment-Enhancing," Cahiers de recherche CREFE / CREFE Working Papers 72, CREFE, Université du Québec à Montréal.
  5. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  6. Naito Hisahiro, 2007. "Atkinson-Stiglitz Theorem with Endogenous Human Capital Accumulation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-19, September.
  7. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  8. Justin L. Tobias, 2003. "Are Returns to Schooling Concentrated Among The Most Able? A Semiparametric Analysis of The Ability--earnings Relationships," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(1), pages 1-29, February.
  9. Emmanuel Saez, 2002. "Direct or Indirect Tax Instruments for Redistribution: Short-run versus Long-run," NBER Working Papers 8833, National Bureau of Economic Research, Inc.
  10. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  11. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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Cited by:
  1. 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).
  2. Christian R. Jaramillo & Jorge Tovar, 2007. "Reflexiones sobre la teoría y la práctica del IVA en Colombia," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.
  3. Hisahiro Naito, 2006. "Redistribution, production inefficiency and decentralized efficiency," International Tax and Public Finance, Springer, vol. 13(5), pages 625-640, September.
  4. Bas Jacobs, 2013. "Optimal redistributive tax and education policies in general equilibrium," International Tax and Public Finance, Springer, vol. 20(2), pages 312-337, April.
  5. Bas Jacobs, 2007. "Optimal Redistributive Tax and Education Policies in General Equilibrium," CESifo Working Paper Series 2162, CESifo Group Munich.

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