Optimal Taxation of Human Capital and the Earnings Function
This paper explores how the specification of the earnings function impacts the optimal tax treatment of human capital. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if most of the education is enjoyed by high ability households, education should be taxed in order to redistribute resources to the poor. The paper identifies the exact conditions under which these two effects cancel and education should be neither taxed nor subsidized. In particular, with non-linear tax instruments, education should be weakly separable from labor and ability in the earnings function. With linear taxes, education should also feature a constant elasticity in a weakly separable earnings function.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 13 (2011)
Issue (Month): 6 (December)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923|
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=1097-3923|
References listed on IDEAS
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.:
- repec:dgr:uvatin:20040101 is not listed on IDEAS
- Grochulski, Borys & Piskorski, Tomasz, 2010.
"Risky human capital and deferred capital income taxation,"
Journal of Economic Theory,
Elsevier, vol. 145(3), pages 908-943, May.
- Borys Grochulski & Tomasz Piskorski, 2007. "Risky human capital and deferred capital income taxation," Working Paper 06-13, Federal Reserve Bank of Richmond.
- Blackorby, Charles & Primont, Daniel & Russell, R. Robert, 2007.
"The Morishima Gross Elasticity of Substitution,"
The Warwick Economics Research Paper Series (TWERPS)
787, University of Warwick, Department of Economics.
- Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
- Blundell, Richard & Macurdy, Thomas, 1999.
"Labor supply: A review of alternative approaches,"
Handbook of Labor Economics,
in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695
- Marek Kapicka & Radim Bohacek, 2007.
"Optimal Human Capital Policies,"
2007 Meeting Papers
464, Society for Economic Dynamics.
- repec:dgr:uvatin:2004101 is not listed on IDEAS
- Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993.
"On the Optimal Taxation of Capital Income,"
NBER Working Papers
4525, National Bureau of Economic Research, Inc.
- repec:dgr:uvatin:20050035 is not listed on IDEAS
- Paolo Bertoletti, 2005. "Elasticities of Substitution and Complementarity: A Synthesis," Journal of Productivity Analysis, Springer, vol. 24(2), pages 183-196, October.
- 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.
- Kotlikoff, Laurence J & Summers, Lawrence H, 1979. "Tax Incidence in a Life Cycle Model with Variable Labor Supply," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 705-18, November.
- Wolfram F. Richter, 2006.
"Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-qualified Labour more Heavily than Qualified Labour,"
CESifo Working Paper Series
1832, CESifo Group Munich.
- Wolfram F. Richter, 2007. "Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour," Ruhr Economic Papers 0012, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Richter, Wolfram F., 2006. "Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-Qualified Labour More Heavily Than Qualified Labour," IZA Discussion Papers 2328, Institute for the Study of Labor (IZA).
- Costa, Carlos Eugênio da & Maestri, Lucas Jóver, 2004.
"The risk-properties of human capital and the design of government policies,"
Economics Working Papers (Ensaios Economicos da EPGE)
554, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- da Costa, Carlos E. & Maestri, Lucas J., 2007. "The risk properties of human capital and the design of government policies," European Economic Review, Elsevier, vol. 51(3), pages 695-713, April.
- Bovenberg, A Lans & Jacobs, Bas, 2005.
"Human Capital and Optimal Positive Taxation of Capital Income,"
CEPR Discussion Papers
5047, C.E.P.R. Discussion Papers.
- Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer, vol. 17(5), pages 451-478, October.
- Hendricks, Lutz, 1999. "Taxation and long-run growth1," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 411-434, April.
- Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Craig Brett & John A. Weymark, 2000.
"Financing Education Using Optimal Redistributive Taxation,"
Vanderbilt University Department of Economics Working Papers
0038, Vanderbilt University Department of Economics, revised May 2001.
- Brett, Craig & Weymark, John A., 2003. "Financing education using optimal redistributive taxation," Journal of Public Economics, Elsevier, vol. 87(11), pages 2549-2569, October.
- Ulph, David, 1977. "On the optimal distribution of income and educational expenditure," Journal of Public Economics, Elsevier, vol. 8(3), pages 341-356, December.
- Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
- Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
- Hicks, John, 1970. "Elasticity of Substitution Again: Substitutes and Complements," Oxford Economic Papers, Oxford University Press, vol. 22(3), pages 289-96, November.
- Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
- Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-89, December.
- Hare, P G & Ulph, D T, 1979. "On Education and Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S193-212, October.
- Tomer Blumkin & Efraim Sadka, 2008. "A case for taxing education," International Tax and Public Finance, Springer, vol. 15(2), pages 145-163, April.
- Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, 05.
- Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
- repec:dgr:uvatin:2005035 is not listed on IDEAS
- Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
- Bas Jacobs, 2007. "Optimal Redistributive Tax and Education Policies in General Equilibrium," CESifo Working Paper Series 2162, CESifo Group Munich.
When requesting a correction, please mention this item's handle: RePEc:bla:jpbect:v:13:y:2011:i:6:p:957-971. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.