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Taxing education in Ramsey's tradition

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Listed author(s):
  • Richter, Wolfram F.

Abstract

Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient to deviate from Ramsey's Rule and to distort qualified labour less than nonqualified labour. Furthermore, if the earnings function displays constant elasticity, the choice of education should not be distorted. With the necessary qualifications the results extend to the case when taxpayers are heterogeneous and when the planner trades off efficiency against equity.

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File URL: http://www.sciencedirect.com/science/article/pii/S0047-2727(09)00113-3
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 11-12 (December)
Pages: 1254-1260

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Handle: RePEc:eee:pubeco:v:93:y:2009:i:11-12:p:1254-1260
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

Keywords: Endogenous choice of education; labour; and saving Second-best efficient taxation Linear instruments Finite periods Ramsey's Rule Power Law of Learning;

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Find related papers by JEL classification:
  • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
  • I28 - Health, Education, and Welfare - - Education - - - Government Policy
  • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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  1. Berthold U. Wigger, 2004. "Are Higher Education Subsidies Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 65-82, 03.
  2. Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, vol. 63(250), pages 171-189, May.
  3. Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 451-478, October.
  4. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
  5. Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1017-1026, October.
  6. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  7. 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.
  8. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-706, September.
  9. Andersson, Fredrik & Konrad, Kai A., 2003. "Human capital investment and globalization in extortionary states," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1539-1555, August.
  10. 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.
  11. 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.
  12. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
  13. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
  14. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, vol. 73(1), pages 93-117, March.
  15. Wolfram F. Richter, 2007. "Efficient Tax Policy Ranks Education Higher than Saving," CESifo Working Paper Series 2106, CESifo Group Munich.
  16. 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.
  17. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
  18. Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-17.
  19. Richter, Wolfram F. & Braun, Christoph, 2009. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," IZA Discussion Papers 4629, Institute for the Study of Labor (IZA).
  20. 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.
  21. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, February.
  22. 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.
  23. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
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Cited by:

  1. Bethencourt, Carlos & Kunze, Lars, 2016. "Temptation and the efficient taxation of education and labor," MPRA Paper 75141, University Library of Munich, Germany.
  2. Wolfram F. Richter & Berthold U. Wigger, 2012. "Besteuerung des Humanvermögens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 82-102, 02.
  3. repec:got:cegedp:137 is not listed on IDEAS
  4. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
  5. Richter, Wolfram F., 2013. "Mincer Equation, Power Law of Learning, and Efficient Education Policy," IZA Discussion Papers 7280, Institute for the Study of Labor (IZA).
  6. Wolfram F. Richter & Kerstin Schneider, 2015. "Education: Optimal Choice and Efficient Policy," CESifo Working Paper Series 5352, CESifo Group Munich.

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