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Redistribution and education subsidies are Siamese twins

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  • Lans Bovenberg, A.
  • Jacobs, Bas

Abstract

We develop models of optimal linear and non-linear income taxation with endogenous human capital formation to explore optimal education subsidies. Optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies. If the government cannot verify all investments in human capital, education policy offsets some but not all tax-induced distortions on learning. Non-pecuniary educational costs (benefits) may increase (decrease) subsidies on education, especially if they are complementary to work effort. See publication in Journal of Public Economics , 2005, 89(11-12), 2005-35.
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  • Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    • Handle: RePEc:eee:pubeco:v:89:y:2005:i:11-12:p:2005-2035
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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