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On the positive effects of taxation on education

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  • Lari Arthur Viianto

    ()
    (Universidad de Alicante)

Abstract

In the economic literature a constant tax rate on labor income has usually a neutral or negative effect on education. The effect is neutral in the absence of non-deductible costs and it is negative in the presence of them. A positive effect is obtained in the presence of non-deductible profits or uncertainty in the returns to education. In this model education is treated as a signalling device for the level of human capital and agents choose freely their labor supply under certainty and perfect financial markets. Within this framework a constant tax rate on labor income has a positive effect on education under certainty and in the absence of non-deductible costs or profits as long as consumption and leisure are complementary and the amount of transfers and family income is low enough.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-30.pdf
File Function: Fisrt version / Primera version, 2007
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2007-30.

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Length: 32 pages
Date of creation: Dec 2007
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2007-30

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Keywords: Education; taxes;

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  1. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
  2. Annette Alstadsæter, 2003. "Income Tax, Consumption Value of Education, and the Choice of Educational Type," CESifo Working Paper Series 1055, CESifo Group Munich.
  3. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
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