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Taxing Human Capital: A Good Idea

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Author Info

  • Christoph Braun

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Abstract

This paper studies a Ramsey optimal taxation model with human capital in an infi nite-horizon setting. Contrary to Jones, Manuelli, and Rossi (1997), the human capital production function does not include the current stock of human capital as a production factor. As a result, the return to human capital, namely labor income, does not vanish in equilibrium. In a stationary state, the household underinvests in human capital relative to the fi rst best, i.e., education is distorted. Human capital is eff ectively taxed. The optimal tax scheme prescribes making the cost of education not fully tax-deductible.

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File URL: http://repec.rwi-essen.de/files/REP_10_202.pdf
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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0202.

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Length: 30 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:rwi:repape:0202

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Related research

Keywords: Optimal taxation; human capital; Ramsey approach;

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Blog mentions

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  1. Should human capital be taxed?
    by Economic Logician in Economic Logic on 2010-10-12 15:56:00

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  1. Economic Logic blog

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