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Tax Policy, Investments in Human and Physical Capital, and Productivity

  • Marc Nerlove
  • Assaf Razin
  • Efraim Sadka
  • Robert K. von Weizsacker

This paper analyzes the implications of tax policy for the accumulation of human and physical capital and for the overall productivity level of the economy. A comprehensive income tax, applying to both labour income and capital income. discriminates against investments in human capital relative to investments in physical capital. Hence. it has an adverse impact on human capital accumulation. Taking into account a positive external effect of investments in human capital on overall productivity, the adverse effect of income taxation on human capital investments is significantly magnified.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3531.

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Date of creation: Dec 1990
Date of revision:
Publication status: published as "Comprehensive Income Taxation, Investments in Human Capital, and Productivity." Journal of Public Economics 50, pp. 397-406 (1993).
Handle: RePEc:nbr:nberwo:3531
Note: PE
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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Adams, James D, 1990. "Fundamental Stocks of Knowledge and Productivity Growth," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 673-702, August.
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