Optimal taxation of human capital and the earnings function

B. Jacobs, A.L. Bovenberg

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper explores how the specification of the earnings function impacts optimal nonlinear taxes on human capital under optimal nonlinear income taxation. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if education is complementary to ability, education should be taxed in order to redistribute income. If education is weakly separable from labor and ability in the earnings function, these two effects cancel and education should be neither taxed nor subsidized.
Original languageEnglish
Pages (from-to)957-971
JournalJournal of Public Economic Theory
Volume13
Issue number6
Publication statusPublished - 2011

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