Income Tax, Consumption Value of Education, and the Choice of Educational Type
How the tax system might affect the individualâ€™s educational level is well studied. But the question of how the tax system affects the individualâ€™s choice of educational type is mostly ignored. This is an important issue, since the educational choice of todayâ€™s young generation determines the skill composition of tomorrowâ€™s labor force and hence the future production possibilities of the country. This paper studies the problem in a partial model. A progressive tax system might in fact introduce distortions in the individualsâ€™s educational choice and induce him to choose more of the educational type with the higher consumption value. If he also puts more weight on the present than on the future, this effect is strengthened further.
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