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Risky Education, Taxation, and Mobility of Labor

Author

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  • Poutvaara, P.

Abstract

This thesis analyzes optimal wage taxation and the effects of wage taxation on investment in risky education, first in a closed economy and then in a federation with alternative tax constitutions. In the first period, students divide their time between education, leisure and work as uneducated labor. In the second period, they supply human capital created in the first period to the labor market. The author shows that a wage-tax dinancied lump-sum transfer induces risk-averse students to allocate more time both to risky education and to leisure. The optimal wage tax rate for those to be educated is shown to be less than one. In our model, only those to be educated pay wage taxes, and the expected tax revenued are returned to students as lump-sum transfers.

Suggested Citation

  • Poutvaara, P., 1999. "Risky Education, Taxation, and Mobility of Labor," University of Helsinki, Department of Economics 81, Department of Economics.
    • Handle: RePEc:fth:helsec:81
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    More about this item

    Keywords

    TAXATION ; FISCAL POLICY ; EDUCATION;
    All these keywords.

    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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