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Taxing Education in Ramsey's Tradition

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  • Wolfram F. Richter

Abstract

Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient to deviate from Ramsey’s Rule and to distort qualified labour less than nonqualified labour. The result holds for arbitrary utility and learning functions. Efficient incentives for education and saving are analysed under conditions of second and third best. It is argued that efficient tax policy should care more about incentives for education than for saving.

Suggested Citation

  • Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," CESifo Working Paper Series 2586, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2586
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    References listed on IDEAS

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    1. Berthold U. Wigger, 2004. "Are Higher Education Subsidies Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 65-82, March.
    2. Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, vol. 63(250), pages 171-189, May.
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    Cited by:

    1. repec:bla:metroe:v:68:y:2017:i:4:p:986-1000 is not listed on IDEAS
    2. repec:got:cegedp:137 is not listed on IDEAS
    3. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
    4. Richter, Wolfram F., 2013. "Mincer Equation, Power Law of Learning, and Efficient Education Policy," IZA Discussion Papers 7280, Institute for the Study of Labor (IZA).
    5. Wolfram F. Richter & Kerstin Schneider, 2015. "Education: Optimal Choice and Efficient Policy," CESifo Working Paper Series 5352, CESifo Group Munich.
    6. Carlos Bethencourt & Lars Kunze, 2017. "Temptation and the efficient taxation of education and labor," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 986-1000, November.
    7. Wolfram F. Richter & Berthold U. Wigger, 2012. "Besteuerung des Humanvermögens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 82-102, February.

    More about this item

    Keywords

    endogenous choice of education; labour; and saving; second-best efficient taxation; Power of Law of Learning;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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