Redistribution and Education Subsidies are Siamese Twins

A.L. Bovenberg, B. Jacobs

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Abstract

We develop a model of human capital formation with endogenous labor supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labor income tax and optimal capital income taxes.Subsidies on education ensure efficiency in human capital accumulation, while taxes on skilled labor help to redistribute income towards the less able.We thus provide a rationale for the widely observed presence of education subsidies.The actually observed tax codes and level of education subsidies suggest that a large part of education subsidies can be justified on these grounds.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages50
Volume2001-82
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-82

Keywords

  • redistribution
  • education
  • subsidies
  • human capital
  • taxation
  • income tax

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