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The Combined Effect of Taxation and Subsidization on Human Capital Investment

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Author Info
Salvatore Barbaro () (Department of Economics, University of Goettingen)
Abstract

The impact of fiscal activity on human capital formation has often been analyzed with regard to the expenditure side of the budget, i.e. the subsidization of (higher) education. Recent contributions have increasingly focused on the effect of taxation on human capital accumulation. Less attention is given to the simultaneous effect of both subsidization and taxation on human capital accumulation. Since subsidies to higher education may offset the distortionary effects of taxation, the paper aims to analyze the amount of subsidization which is necessary to counteract the discouraging effect of various kinds of taxation (i.e., proportional, direct, indirect taxation and a combination of both direct and indirect taxation) on human capital, measured as the graduation rates. Furthermore, the effect of externalities from higher education on the optimal amount shall be analyzed as well as the role of taxation if direct costs of higher education are completely born by the state. The framework we use to illustrate our point is an two period cohort model with heterogeneous agents who endogenously decide on higher education with respect to taxation and subsidization.

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Paper provided by University of Goettingen, Department of Economics in its series Departmental Discussion Papers with number 116.

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Length: 15
Date of creation: 01 Jan 2003
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Handle: RePEc:got:vwldps:116

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Related research
Keywords: tax neutrality; human capital investment; education subsidies; income tax progression;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
I22 - Health, Education, and Welfare - - Education - - - Educational Finance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Peter Rühmann & Jens Südekum, 2001. "Severance Payments and Firm-Specific Human Capital," Departmental Discussion Papers 111, University of Goettingen, Department of Economics. [Downloadable!]
    Other versions:
  2. Andreas Haufler & Michael Pflüger, 2003. "International Commodity Taxation under Monopolistic Competition," Discussion Papers of DIW Berlin 332, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Jens Südekum, 2001. "Home Goods and Regional Price Indices: A Perspective from New Economic Geography," Departmental Discussion Papers 109, University of Goettingen, Department of Economics. [Downloadable!]
  4. Tim Krieger, 2001. "Intergenerational Redistribution and Labor Mobility: A Survey," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 339-, July.
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  5. Christoph Sauer & Margit Schratzenstaller, 2002. "Strategies Of International Fiscal Competition For Foreign Direct Investment In A Model With Impure Public Inputs," Departmental Discussion Papers 115, University of Goettingen, Department of Economics. [Downloadable!]
  6. Haufler, A. & Schjelderup, G. & Stahler, F., 2000. "Commodity Taxation and International Trade in Imperfect Markets," Papers 17/00, Norwegian School of Economics and Business Administration-.
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  7. Johann Graf Lambsdorff & Sitki Utku Teksoz, 2002. "Corrupt Relational Contracting," Departmental Discussion Papers 113, University of Goettingen, Department of Economics. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Renate Ohr, . "European Monetary Union at Ten: Had the German Maastricht Critics Been Wrong?," Departmental Discussion Papers 141, University of Goettingen, Department of Economics. [Downloadable!]
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