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The Combined Effect of Taxation and Subsidization on Human Capital Investment

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    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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    File URL: http://www2.vwl.wiso.uni-goettingen.de/departmentpaper/NO_116.pdf
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    Bibliographic Info

    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
    Date of revision:
    Handle: RePEc:got:vwldps:116

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

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    References

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    1. Andreas Haufler & Michael Pflüger, 2001. "International Commodity Taxation under Monopolistic Competition," Departmental Discussion Papers 108, University of Goettingen, Department of Economics.
    2. Barbaro, Salvatore, 2002. "The distributional impact of subsidies to higher education: empirical evidence from Germany," FiBS-Forum 11, Forschungsinstitut für Bildungs- und Sozialökonomie (FiBS).
    3. Johann Graf Lambsdorff & Sitki Utku Teksoz, 2002. "Corrupt Relational Contracting," Departmental Discussion Papers 113, University of Goettingen, Department of Economics.
    4. Andreas Haufler & Guttorm Schjelderup & Frank Stähler, 2000. "Commodity Taxation and International Trade in Imperfect Markets," CESifo Working Paper Series 376, CESifo Group Munich.
    5. 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.
    6. Salvatore Barbaro, 2002. "The Distributional Impact of Subsidies to Higher Education - Empirical Evidence from Germany," Departmental Discussion Papers 114, University of Goettingen, Department of Economics.
    7. Tim Krieger, 2001. "Intergenerational Redistribution and Labor Mobility: A Survey," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 339-, July.
    8. Jens Suedekum & Peter Ruehmann, 2003. "Severance Payments and Firm-specific Human Capital," LABOUR, CEIS, vol. 17(1), pages 47-62, 03.
    9. Onozaki, Tamotsu & Sieg, Gernot & Yokoo, Masanori, 2003. "Stability, chaos and multiple attractors: a single agent makes a difference," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1917-1938, August.
    10. Onozaki, Tamotsu & Sieg, Gernot & Yokoo, Masanori, 2000. "Complex dynamics in a cobweb model with adaptive production adjustment," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 101-115, February.
    11. Sieg, Gernot, 2001. "A political business cycle with boundedly rational agents," European Journal of Political Economy, Elsevier, vol. 17(1), pages 39-52, March.
    12. 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.
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    Cited by:
    1. Salvatore Barbaro & Jens Südekum, 2004. "Reforming a complicated income tax system: The political economics perspective," Departmental Discussion Papers 120, University of Goettingen, Department of Economics.
    2. Petra Enß & Robert Schwager, 2006. "Kommunaler Finanzausgleich und Gewerbesteuerhebesätze in Niedersachsen," Departmental Discussion Papers 127, University of Goettingen, Department of Economics.
    3. Sascha Wolff, 2006. "Migration und ihre Determinanten im ost-westdeutschen Kontext nach der Wiedervereinigung: Ein Literaturüberblick," Departmental Discussion Papers 130, University of Goettingen, Department of Economics.
    4. Renate Ohr, 2009. "European Monetary Union at Ten: Had the German Maastricht Critics Been Wrong?," Departmental Discussion Papers 141, University of Goettingen, Department of Economics.
    5. Thies Büttner & Robert Schwager, 2003. "Regionale Verteilungseffekte der Hochschulfinanzierung und ihre Konsequenzen," Departmental Discussion Papers 119, University of Goettingen, Department of Economics.

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