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Tax Effects on Unemployment and the Choice of Educational Type

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  • Annette Alstadsæter
  • Ann-Sofie Kolm
  • Birthe Larsen

    ()
    (Statistics Norway)

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 Research Department of Statistics Norway in its series Discussion Papers with number 419.

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Date of creation: Jan 2005
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Handle: RePEc:ssb:dispap:419

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Keywords: Unemployment; matching; education; optimal taxation; tuition fees;

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  1. E. John Driffill & Harvey S. Rosen, 1984. "Taxation and Excess Burden: A Life-Cycle Perspective," NBER Working Papers 0698, National Bureau of Economic Research, Inc.
  2. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  3. Pestieau, P. & Possen, U.M., 1988. "Tax Evasion And Occupational Choice," Papers 404, Cornell - Department of Economics.
  4. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Theodore W. Schultz, 1960. "Capital Formation by Education," Journal of Political Economy, University of Chicago Press, vol. 68, pages 571.
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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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