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Tax Policy and Human Capital Formation

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  • James J. Heckman
  • Lance Lochner
  • Christopher Taber

Abstract

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.

Suggested Citation

  • James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Tax Policy and Human Capital Formation," NBER Working Papers 6462, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6462
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    References listed on IDEAS

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    1. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters, in: National Saving and Economic Performance, pages 163-200, National Bureau of Economic Research, Inc.
    2. 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.
    3. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    4. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2, May.
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