Tax Policy and Human Capital Formation
Missing from recent discussions of tax reform is any systematic analysis of the effects of various tax proposals on skill formation. This gap in the literature in empirical public finance is due to the absence of any empirically based general equilibrium models with both human capital formation and physical capital formation that are consistent with observations on modern labor markets. This paper is a progress report on our ongoing research on formulating and estimating dynamic general equilibrium models with endogenous heterogeneous human capital accumulation. Our model explains many features of rising wage inequality in the U.S. economy (James Heckman, Lance Lochner and Christopher Taber, 1998). In this paper, we use our model to study the impacts on skill formation of proposals to switch from progressive taxes to flat income and consumption taxes. For the sake of brevity, we focus on steady states in this paper, although we study both transitions and steady states in our research.
|Date of creation:||Mar 1998|
|Date of revision:|
|Publication status:||published as American Economic Review, Vol. 88, no. 2 (May 1998): 293-297. Published as "Human Capital Formation and General Equilibrium Treatment Effects: A Study of Tax and Tuition Policy", FS, Vol. 20, no. 1 (March 1999): 25-40.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- James Davies & John Whalley, 1989.
"Taxes and Capital Formation: How Important is Human Capital?,"
NBER Working Papers
2899, National Bureau of Economic Research, Inc.
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NBER Working Papers
6384, National Bureau of Economic Research, Inc.
- James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
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