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Tax Effects of Unemployment and the Choice of Educational Type

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Author Info

  • Alstadsæter, Annette

    ()
    (Research Department, Statistics Norway,)

  • Kolm, Ann-Sofie

    ()
    (Dept. of Economics, Stockholm University)

  • Larsen, Birthe

    ()
    (CIM and Copenhagen Business School)

Abstract

This paper examines the effect of taxes on the individuals’ choices of educational direction, and thus on the economy’s skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.

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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2005:4.

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Length: 25 pages
Date of creation: 20 Apr 2005
Date of revision:
Handle: RePEc:hhs:sunrpe:2005_0004

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
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Web page: http://www.ne.su.se/
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Keywords: Unemployment; matching; education; optimal taxation; tuition fees;

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  1. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
  2. Pestieau, P. & Possen, U., 1990. "Tax evasion and occupational choice," CORE Discussion Papers 1990033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
  4. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  5. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  6. Theodore W. Schultz, 1960. "Capital Formation by Education," Journal of Political Economy, University of Chicago Press, vol. 68, pages 571.
  7. Parker, Simon C, 1996. "A Time Series Model of Self-Employment under Uncertainty," Economica, London School of Economics and Political Science, vol. 63(251), pages 459-75, August.
  8. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
  9. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
  10. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  11. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-83, October.
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Cited by:
  1. von Greiff, Camilo, 2007. "Specialization in Higher Education and Economic Growth," Research Papers in Economics 2007:13, Stockholm University, Department of Economics.

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