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The Impact of Taxes and Transfers on Skill Premium

Author

Listed:
  • Shuhei Takahashi

    (Institute of Economic Research, Kyoto University)

  • Ken Yamada

    (Faculty of Economics,Kyoto University)

Abstract

The level of wage inequality has varied across advanced industrial countries. One of the main reasons has been a significant difference in the skill wage premium. This study analyzes the impact of taxes and transfers on the skill wage premium and social welfare in the context of a heterogeneous-agents incomplete-markets model, in which the population consists of skilled workers and unskilled workers, and the production technology exhibits capital-skill complementarity. The analysis indicates that a significant fraction of the difference in the skill wage premium between the United States and Japan can be accounted for by differences in the tax system.

Suggested Citation

  • Shuhei Takahashi & Ken Yamada, 2017. "The Impact of Taxes and Transfers on Skill Premium," KIER Working Papers 976, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:976
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    References listed on IDEAS

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    More about this item

    Keywords

    Skill premium; capital-skill complementarity; incomplete markets; capital income taxation; composition effect;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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