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Learning and (or) Doing: Human Capital Investments and Optimal Taxation

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  • Stefanie Stantcheva

Abstract

This paper considers a dynamic taxation problem when agents can allocate their time between working and investing in their human capital. Time investment in human capital, or "training," increases the wage and can interact with an agent's intrinsic, exogenous, and stochastic earnings ability. It also interacts with both current and future labor supply and there can be either "learning-and-doing" (when labor and training are complements, like for on-the-job training) or "learning-or-doing" (when labor and training are substitutes, like for college). Agents' abilities and labor supply are private information to them, which leads to a dynamic mechanism design problem with incentive compatibility constraints. At the optimum, the subsidy on training time is set so as to balance the total labor supply effect of the subsidy and its distributional consequences. In a one-period version of the model, particularly simple relations arise at the optimum between the labor wedge and the training wedge that can also be used to test for the Pareto efficiency of existing tax and subsidy systems. In the limit case of learning-by-doing (when training is a direct by-product of labor) or in the case in which agents who are more able at work are also more able at training, there are important modifications to the labor wedge.

Suggested Citation

  • Stefanie Stantcheva, 2015. "Learning and (or) Doing: Human Capital Investments and Optimal Taxation," NBER Working Papers 21381, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21381
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    References listed on IDEAS

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    7. Florian Scheuer, 2014. "Entrepreneurial Taxation with Endogenous Entry," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 126-163, May.
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    Cited by:

    1. Xu, Kun & Guan, Zhihua & Xu, Wenli, 2015. "省级财政支出效率空间溢出效应研究:基于超效率dea和gsm模型
      [Study on Spatial Spillover Effect of Provincial Fiscal Efficiency: Based on Super-Efficient DEA and GSM Model]
      ," MPRA Paper 71132, University Library of Munich, Germany.
    2. William Peterman, 2016. "The effect of endogenous human capital accumulation on optimal taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 46-71, July.
    3. Blandin, Adam & Peterman, William B., 2019. "Taxing capital? The importance of how human capital is accumulated," European Economic Review, Elsevier, vol. 119(C), pages 482-508.
    4. Kurnaz, Musab & Soytas, Mehmet A., 2019. "Intergenerational Income Mobility and Income Taxation," GLO Discussion Paper Series 409, Global Labor Organization (GLO).

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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