Resource title

Taxing human capital efficiently: the double dividend of taxing non-qualified labour more heavily than qualified labour

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Resource description

Assuming decreasing returns to education and the endogenous supply of qualified and nonqualified labour it is shown to be efficient to supplement a consumption tax with positive incentives for education. If the return from education is isoelastic and if the choice is between (i) subsidizing the monetary cost of education and (ii) taxing nonqualified labour income more heavily than qualified labour income while keeping the effective cost of education constant, the latter policy is shown to be second-best efficient. In particular, any tax distortions should be constrained to labour choices while the choice of education should remain undistorted. The result holds for arbitrary utility functions.

Resource author

Wolfram F. Richter

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25877

Resource license

Adapt according to the presented license agreement and reference the original author.