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Taxation, Human Capital, and Uncertainty

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  • Eaton, Jonathan
  • Rosen, Harvey S

Abstract

This paper analyzes the effect of wage and interest taxation on investment in human capital. It is shown that results derived under the assumption that human.capital is a riskless asset fail to obtain when the return on human capi- tal is uncertain. The interaction of the human capital investment decision with savings, consumption and labor-leisure choices are taken into account. An implication of the analysis is that, when the rate of return on human capi- tal is stochastic, efficient taxation requires positive taxation of wage income even when lump-sum taxation is feasible.
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Suggested Citation

  • Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    • Handle: RePEc:aea:aecrev:v:70:y:1980:i:4:p:705-15
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    JEL classification:

    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other

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