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Optimal human capital policies under the endogenous choice of educational types

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  • OBARA, Takuya

Abstract

This study examines optimal human capital policies under non-linear labor and capital income taxes in the presence of consumption value of education in a two-period setting. We show that when individuals can choose educational types differing by the relative importance of consumption value and production value, education subsidies for low-type individuals should not equal an efficient level that offsets distortions induced by non-linear taxes on labor and capital income. Our findings imply that education policy does not restore efficiency, or the Diamond-Mirrlees production efficiency theorem fails. Moreover, capital income taxation is optimal, which means that the Atkinson-Stiglitz theorem breaks down.

Suggested Citation

  • OBARA, Takuya, 2018. "Optimal human capital policies under the endogenous choice of educational types," CCES Discussion Paper Series 66, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  • Handle: RePEc:hit:ccesdp:66
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    More about this item

    Keywords

    Human capital; Education subsidies; Labor income taxation; Capital income taxation; Consumption value of education;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I2 - Health, Education, and Welfare - - Education
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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