Tax Effects, Search Unemployment, and the Choice of Educational Type
This paper examines the effect of taxes on the individualsâ€™ choices of educational direction, and thus on the economyâ€™s skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.
|Date of creation:||2005|
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