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Taxation And Human Capital Accumulation

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  • HENDRICKS, LUTZ

Abstract

How do taxes affect human capital accumulation? This question has been studied extensively in the context of two model classes: overlapping generations (OLG) and infinite horizon (IH) models. These embody very different assumptions about the intergenerational transmission of physical and human capital. This paper investigates how such differences in intercohort persistence affect the responsiveness of human capital to taxation. A model is developed that nests OLG and IH models as special cases. The steady state and transitional effects of tax changes are computed for varying degrees of persistence. The main finding is that stronger intercohort persistence magnifies the impact of taxation on human capital and leads to slower transitional dynamics. As a result, IH models generate systematically larger tax effects than OLG models. For the tax experiments studied here, models with complete persistence generate steady state tax elasticities at least two times larger and transitional half-lives at least three times longer than do models without persistence.
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Suggested Citation

  • Hendricks, Lutz, 2004. "Taxation And Human Capital Accumulation," Macroeconomic Dynamics, Cambridge University Press, vol. 8(03), pages 310-334, June.
  • Handle: RePEc:cup:macdyn:v:8:y:2004:i:03:p:310-334_03
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    Cited by:

    1. Lutz Hendricks, 2000. "Do Redistributive Policies Promote Intergenerational Mobility?," Econometric Society World Congress 2000 Contributed Papers 0607, Econometric Society.
    2. Long Xin & Pelloni Alessandra, 2011. "Welfare improving taxation on savings in a growth model," wp.comunite 0091, Department of Communication, University of Teramo.
    3. Igor Kotlán & Zuzana Machová, 2012. "Vliv zdanění korporací na ekonomický růst: selhání daňové kvóty?
      [The Influence of Corporate Taxation on Economic Growth: The Failure of Tax Quota?]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(6), pages 743-763.
    4. Long, Xin & Pelloni, Alessandra, 2017. "Factor income taxation in a horizontal innovation model," Journal of Public Economics, Elsevier, vol. 154(C), pages 137-159.
    5. Igor Kotlán & Zuzana Machová & Lenka Janíčková, 2011. "Vliv zdanění na dlouhodobý ekonomický růst
      [Taxation Influence on the Economic Growth]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(5), pages 638-658.
    6. Dean Scrimgeour, 2015. "Dynamic Scoring in a Romer-Style Economy," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 697-723, January.
    7. Hendricks, Lutz, 2003. "Taxation and the intergenerational transmission of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1639-1662, July.

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