The effects of the tax system on education decisions and welfare
I study the effects of a linear tax schedule on educational decisions and welfare in a two period model where the educational decision is discrete and its return is uncertain. I find that a linear tax rate has a positive effect on the number of agents who decide to acquire higher education. This effect becomes negative when the revenue is returned as a lump-sum transfer. The government can influence the education level to some extent using a linear tax schedule. However this policy always has a negative welfare effect. I also find that if there is a revenue need a welfare maximizing government will prefer a linear tax to a lump-sum tax.
|Date of creation:||Mar 2010|
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