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Tax Policy and Returns to Education

  • Alison L. Booth
  • Melvyn B. Coles

This paper considers how asymmetric tax treatment, where labour market earnings are taxed but household production is untaxed, aspects educational choice and labour supply. We show that taxes on labour market earnings can generate a large (non-marginal) switch to home production and the ensuing deadweight losses are large. Using a cross-country panel, we find that gender differences in labour supply responses to tax policy can explain differences in aggregate labour supply and years of education across countries.

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File URL: http://cbe.anu.edu.au/researchpapers/cepr/DP591.pdf
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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 591.

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Date of creation: Dec 2008
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Handle: RePEc:auu:dpaper:591
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  1. repec:dgr:uvatin:2005036 is not listed on IDEAS
  2. Alesina, Alberto & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA).
  3. Alison Booth & Melvyn Coles, 2010. "Education, Matching, and the Allocative Value of Romance," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 744-775, 06.
  4. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  5. Alison L. Booth & Melvyn Coles, 2006. "A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap," CEPR Discussion Papers 543, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  6. 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.
  7. repec:dgr:uvatin:20050036 is not listed on IDEAS
  8. Apps, P.F. & Rees, R., 1993. "Labour Supply, Household Production and Intra-Family Welfare Distribution," Working Papers 1993-3, University of Guelph, Department of Economics and Finance.
  9. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
  10. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
  11. Trostel, P. & Walker, I., 2000. "Education and Work," The Warwick Economics Research Paper Series (TWERPS) 554, University of Warwick, Department of Economics.
  12. Rios-Rull, Jose-Victor, 1993. "Working in the Market, Working at Home, and the Acquisition of Skills: A General-Equilibrium Approach," American Economic Review, American Economic Association, vol. 83(4), pages 893-907, September.
  13. Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, 05.
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