Optimal Nonlinear Taxation of Income and Education Expenditures
AbstractDespite using a variety of models and assumptions, the existing literature has overwhelmingly concluded that education policy should be regressive. In this paper, we examine a two-period model in which the government may impose non- linear taxes on both labour income and education expenditures. Individuals un- dertake education in the OÌˆrst period to increase their second-period wages. Our main result is that optimal education policy in our model is progressive. SpeciOÌˆ- cally, if the government can commit, it is optimal for high-skill individuals to face a zero marginal tax rate on their education expenditures, while that for low-skill individuals is negative. If the government cannot commit, the optimal marginal tax rate on education expenditures by high-skill individuals is positive, while that for low-skill individuals remains negative.
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Bibliographic InfoPaper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 201008.
Date of creation: Aug 2010
Date of revision: Aug 2010
education policy; dynamic nonlinear taxation; commitment.;
Other versions of this item:
- Jang-Ting Guo & Alan Krause, 2013. "Optimal nonlinear taxation of income and education expenditures," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 74-95, January.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jang‐Ting Guo & Alan Krause, 2011.
"Optimal Nonlinear Income Taxation with Habit Formation,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 13(3), pages 463-480, 06.
- Jang-Ting Guo & Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Habit Formation," Working Papers 200810, University of California at Riverside, Department of Economics, revised Aug 2008.
- De Fraja, Gianni, 1998.
"The Design of Optimal Education Policies,"
CEPR Discussion Papers
1792, C.E.P.R. Discussion Papers.
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