IDEAS home Printed from https://ideas.repec.org/p/isu/genres/12358.html
   My bibliography  Save this paper

Optimal Wage Taxation When Human Capital and Employment Are Endogenous

Author

Listed:
  • Kreider, Brent

Abstract

This paper studies how optimal wage tax conclusions from the classic two-period life-cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. Compensated wage taxes and subsidies can restore proper price signals. Numerical simulations suggest that even modest extensive margin employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates.

Suggested Citation

  • Kreider, Brent, 2008. "Optimal Wage Taxation When Human Capital and Employment Are Endogenous," Staff General Research Papers Archive 12358, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12358
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Poutvaara, Panu, 2001. "Alternative tax constitutions and risky education in a federation," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 355-377, April.
    2. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, pages 365-374.
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    4. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, pages 73-95.
    5. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    6. Schmidt, Christoph M & Zimmermann, Klaus F, 1991. "Work Characteristics, Firm Size and Wages," The Review of Economics and Statistics, MIT Press, pages 705-710.
    7. Robert H. Haveman & Barbara L. Wolfe, 1984. "Schooling and Economic Well-Being: The Role of Nonmarket Effects," Journal of Human Resources, University of Wisconsin Press, pages 377-407.
    8. Goldin, Claudia, 1979. "Household and market production of families in a late nineteenth century American city," Explorations in Economic History, Elsevier, vol. 16(2), pages 111-131, April.
    9. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-388, June.
    10. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters,in: National Saving and Economic Performance, pages 163-200 National Bureau of Economic Research, Inc.
    11. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
    12. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, pages 49-68.
    13. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, pages 54-58.
    14. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, pages 291-310.
    15. Scholz, John Karl, 1996. "In-Work Benefits in the United States: The Earned Income Tax Credit," Economic Journal, Royal Economic Society, vol. 106(434), pages 156-169, January.
    16. Brown, Eleanor & Kaufold, Howard, 1988. "Human Capital Accumulation and the Optimal Level of Unemployment Insurance Provision," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 493-514, October.
    17. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, pages 950-963.
    18. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2.
    19. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 357-364.
    20. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, pages 705-715.
    21. Snow, Arthur & Warren, Ronald S, Jr, 1990. "Human Capital Investment and Labor Supply under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 195-206, February.
    22. Lin, Shuanglin, 1998. "Labor income taxation and human capital accumulation," Journal of Public Economics, Elsevier, pages 291-302.
    23. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, pages 3-42.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genres:12358. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer). General contact details of provider: http://edirc.repec.org/data/deiasus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.