Efficient Tax Policy Ranks Education Higher Than Saving
AbstractAssuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient not to distort the choice of education. In general this implies distorting the saving decision. Hence a strict order of policy priority is derived. Efficient tax policy ranks education higher than saving. The result assumes an isoelastic earnings function and holds else for arbitrary utility functions. Isoelasticity of earnings is justified with reference to the empirically well-founded Power Law of Learning.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3451.
Length: 23 pages
Date of creation: Apr 2008
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Other versions of this item:
- Wolfram F. Richter, 2007. "Efficient Tax Policy Ranks Education Higher than Saving," CESifo Working Paper Series 2106, CESifo Group Munich.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- I28 - Health, Education, and Welfare - - Education - - - Government Policy
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-29 (All new papers)
- NEP-EDU-2008-04-29 (Education)
- NEP-PBE-2008-04-29 (Public Economics)
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