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Firm Training and Capital Taxation

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  • Wolfgang Lechthaler

Abstract

In the setup of an overlapping-generations model with firm training, I analyze the consequences of a tax on capital income. A capital tax influences training investments via two opposing effects. On the one hand, it lowers the stock of physical capital and thereby the productivity of training. On the other hand, the degree of wage compression is increased, improving the incentives to train. In principle either effect can dominate. If the wage-compression effect dominates, it is possible that a tax on capital income increases welfare, since underinvestment in training is more severe than underinvestment in physical capital.

Suggested Citation

  • Wolfgang Lechthaler, 2011. "Firm Training and Capital Taxation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(2), pages 175-201, June.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201106)167:2_175:ftact_2.0.tx_2-2
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    References listed on IDEAS

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    1. Charles T. Carlstrom & David Altig, 1999. "Marginal Tax Rates and Income Inequality in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 89(5), pages 1197-1215, December.
    2. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1-9.
    3. Eric Bartelsman & Andrea Bassanini & John Haltiwanger & Ron Jarmin & Stefano Scarpetta & Thorsten Schank, 2002. "The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?," CEPN Working Papers halshs-00289168, HAL.
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    5. John M. Barron & Mark C. Berger & Dan A. Black, 1999. "Do Workers Pay for On-The-Job Training?," Journal of Human Resources, University of Wisconsin Press, vol. 34(2), pages 235-252.
    6. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    7. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    8. 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.
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

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