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Optimal Tax Theory for Investment in Human Capital and the Role of Family

Author

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  • Sylwia Radomska

    (Faculty of Management, University of Warsaw, Poland)

Abstract

Purpose: Parents spend more than half of all education expenditures on children’s education, thus the role of the family cannot be omitted in determining the optimal educational policy. The main aim of the article is to present economic literature on optimal taxation with human capital, focusing on studies concerning the impact of the family (parents) on the investment in children’s human capital. Design/Methodology/Approach: Insights from two workhorses are reviewed: the RAMSEY approach and the MIRRLEES approach. The literature in the field considers two instruments: Income-Contingent Loans (ICL) and Education Subsidies (ES). Results from theoretical and simulation studies are summarized. Findings: Income-contingent repayment loans can improve welfare, whereas the effects of education subsidies may be positive only under some assumptions. Research limitations/Implications: The MIRRLEES approach is a relatively new strand of literature and due to numerically complexity all researches analyze only partial-equilibrium models with simple set-up (without altruistic families/ fertility decisions/ pension systems). Originality/value: The article provides guidance for policymaker and decision-makers regarding optimal higher education systems and financial support systems for students.

Suggested Citation

  • Sylwia Radomska, 2023. "Optimal Tax Theory for Investment in Human Capital and the Role of Family," Research Reports, University of Warsaw, Faculty of Management, vol. 2(39), pages 41-57.
    • Handle: RePEc:sgm:resrep:v:2:i:39:y:2023:p:41-57
    DOI: 10.7172/1733-9758.2023.39.3
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    File URL: https://press.wz.uw.edu.pl/sim/vol2023/iss2/3/
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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