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Income Taxation, Tuition Subsidies, and Choice of Occupation

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Abstract

Differentiated tax rates on labor and capital income are found to be optimal in this study, where agents choose occupation based on lifetime income net of tuition costs. Efficient revenue raising in a case where the government can not observe educational effort implies that the government should trade off efficiency in production for efficiency in intertemporal consumption. The subsequent wage difference between high and low-skilled occupations is increased compared to a production efficient outcome, which is in contrast to previous results in the literature.

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  • Geir Haakon Bjertnæs, 2006. "Income Taxation, Tuition Subsidies, and Choice of Occupation," Discussion Papers 459, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:459
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    More about this item

    Keywords

    Optimal income taxation; Subsidies for tuition; Skill formation; Production efficiency;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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