on the optimality of the nordic system of dual income taxation abstract in recent years the nordic countries have introduced a so called dual income tax which combines a proportional tax on capital income with progressive taxation of labour income the paper argues that this asymmetric treatment of the two types of income can be defended on pure efficiency grounds because the progressivity of the labour income tax serves to reduce the private return to human capital investment thereby offsetting the tendency of a proportional comprehensive income tax to discriminate in favour of such investment the analysis is based on an overlapping generations model of a small open economy where consumers face a trade off between investment in human capital and investment in non human capital extended versions of the model allow for liquidity constraints and an endogenous labour leisure choice

optimal progressive labor income taxation and education subsidies when education decisions and intergenerational transfers are endogenous abstract we quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation borrowing constraints income risk and incomplete financial markets in addition to the distortions of labor supply progressive taxes weaken the incentives to acquire education the latter distortion can potentially be mitigated by an education subsidy we find that the welfare maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education both the degree of tax progressivity and the education subsidy are larger than in the current us status quo

taxation and excess burden a life cycle perspective a lifetime perspective is appropriate in assessing the welfare implications of government tax policies although a number of attempts have been made to ex amine the excess burden of taxation in life cycle models these have tended to ignore the role of human capital accumulation and or the leisure income choice in this paper we do numerical simulations with a model that takes both of these phenomena into account we find that under reasonable assumptions the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation in addition allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax this abstract was borrowed from another version of this item

optimal policy and the risk properties of human capital reconsidered abstract this paper considers how optimal education and tax policy depends on the risk properties of human capital a key feature of human capital investments is whether they increase or decrease wage risk in a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium in the same model a positive intertemporal wedge is optimal the robustness of these results is explored in two generalizations nonobservability of education and nonobservability of consumption finally policies that implement the constrained efficient allocations are considered

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

mergers and acquisitions between risk averse parties abstract this paper evaluates mergers and acquisitions ma however it may yield a higher price for the consumer moreover we show that a decentralized supply chain can be more beneficial for the parties than a centralized supply chain formed by acquisition

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

separability and public finance abstract in a second best environment the optimal policy choice sometimes follows first best rules this paper presents a formal general argument which allows to unify much of the literature it lays down the information structure and separability assumptions under which the results hold in a variety of setups with extensions to preference heterogeneity and individual production sets

education policies and taxation without commitment we study the implications of limited commitment on education and tax policies set by benevolent governments consistent with real world practices a government can decide to subsidize different levels of education at different rates a lack of commitment however affects the optimal structure of education subsidies the direction of the effect depends on how labor taxes are designed with linear labor tax rates and a transfer for redistribution subsidies become more progressive by contrast if the government is only constrained by informational asymmetries when designing taxes subsidies become more regressive

the taxation of superstars how are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution to answer this question we extend the mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects perhaps surprisingly rather than providing a rationale for higher taxes we show that superstar effects provide a force for lower marginal taxes conditional on the observed distribution of earnings superstar effects make the earnings schedule convex which increases the responsiveness of individual earnings to tax changes we show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas finally we study a comparative static that does not keep the observed earnings distribution fixed when superstar technologies are introduced inequality increases but we obtain a neutrality result finding tax rates at the top unaltered

progressive taxes equity and human capital accumulation in an endogenous growth model with overlapping generations abstract this paper explores the trade off between efficiency and intra and intergenerational equity in an endogenous growth model of an open economy with overlapping generations and human capital accumulation we demonstrate that progressive taxes hurt long run growth and exacerbate distortions associated with intergenerational spillovers however by raising saving these taxes strengthen the net foreign asset position

public debt accumulation and fiscal consolidation in this study we analyse the relationship between interest rates on government bonds gb and the fiscal consolidation rule by using an overlapping generation model with endogenous and stochastic growth settings our key findings are summarized as follows first contrary to conventional view we find that interest rates on gb may decline as public debt accumulates relative to private capital second the simulation reveals that the economy may exhibit discrete changes with divergent interest rates implying that the observed trend of relatively low interest rates on gb with public debt accumulation may not continue indefinitely in the future third fiscal consolidation rule plays a key role in determining equilibrium interest rates

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

on the taxation of human and physical capital in models of endogenous growth abstract this paper studies the effects of factor income taxation and of subsidies to human capital accumulation in models of endogenous growth it examines in particular how these effects depend on the specification of the leisure activity and on the technology and tax treatment of the sector producing human capital it shows that the negative effects of factor income taxes on economic growth are stronger when the human capital sector is a market good under these circumstances a subsidy to human capital accumulation can offset the direct growth effects of labor taxation making it akin to a consumption tax the paper then briefly discusses the normative implications of the analysis for the optimal taxation of factor incomes

investment in education and the time inconsistency of redistributive tax policy time inconsistency of tax policy is shown to arise in a setting where households differ in their ability to accumulate wealth and where the government has redistributional objectives it is assumed that wealth accumulation takes the form of human capital acquired through education the government is precluded from redistributing to a first best optimum by a self selection constraint the second best is shown to be time inconsistent in the time consistent optimum households underinvest in education an argument can be made for public intervention in the provision of education

taxation and long run growth abstract a number of recent papers have investigated the growth effects of tax reforms in the context of neoclassical growth models with human capital growth effects were found to be large but highly sensitive to parameter choices this paper shows that growth effects are smaller and much less sensitive in models that generate realistic life cycle behavior which requires that households are finitely lived but generations may be altruistically linked and face diminishing point in time returns in human capital accumulation reasonable upper bounds for growth effects in such models are less than one third of some values reported in the literature

optimal taxation of risky human capital in a two period life cycle model with ex ante homogeneous households earnings risk and a general earnings function we derive the optimal linear labor tax rate and optimal linear education subsidies the optimal income tax trades off social insurance against incentives to work education subsidies are not used for social insurance but they are only targeted at offsetting the distortions of the labor tax and internalizing a fiscal externality both optimal education subsidies and tax rates increase if labor and education are more complementary because education subsidies indirectly lower labor tax distortions by stimulating labor supply optimal education subsidies taxes also correct non tax distortions arising from missing insurance markets education subsidies internalize a positive negative fiscal externality if there is underinvestment overinvestment in education because of risk education policy unambiguously allows for more social insurance if education is a risky activity however if education hedges against labor market risk optimal tax rates could be lower than in the case without education subsidies

flat income taxation redistribution and labour market performance a flat tax rate on labour income has gained popularity in european countries this article assesses the attractiveness of such a flat tax in achieving redistributive objectives with the smallest distortions to employment we do so by using a detailed applied general equilibrium model for the netherlands the model is empirically grounded in the data and encompasses decisions on hours worked labour force participation skill formation wage bargaining between unions and firms and a wide variety of institutional details the simulations suggest that the replacement of the current tax system in the netherlands by a flat rate will harm labour market performance if aggregate income inequality is contained only flat tax reforms that reduce redistribution will raise employment this finding bolsters the notions from optimal tax literature regarding the equity efficiency trade off and the superiority of nonlinear taxes to obtain redistributive goals in an efficient way

does parents money matter abstract this paper asks whether parents income per se has a positive impact on children s abilities previous research has established that income is positively correlated across generations this does not prove that parents money matters however since income is presumably correlated with ability this paper estimates the impact of parents income by focusing on income variation due to factors union industry and job loss that arguably represent luck i find that changes in parents income due to luck have a negligible impact on children s human capital for most families although parents money does matter for families whose father has low education

optimal timing of college subsidies enrollment graduation and the skill premium abstract the large increase in the skill premium has led many policy makers to propose increasing college subsidies as a strategy to increase college enrollment and reduce inequality existing analyses typically assume that there is no distinction between enrollment and graduation but in fact more than 50 of college enrollees do not graduate this highlights the need to explicitly model the decision to drop out in assessing the effect of subsidies i build a general equilibrium model of education choice that features an explicit dropout decision calibrate it to match key features of the us economy and use it to evaluate the impact of college subsidies on the supply of college educated labor i show that moving to a system in which subsidies are back loaded i e higher for juniors and seniors than for freshmen and sophomores will increase the supply of college educated labor even holding total subsides constant in fact this effect is larger than what would be accomplished by a uniform 50 increase in subsidies

optimal provision of public goods a synthesis the standard approach to the optimal provision of public goods highlights the importance of distortionary taxation and distributional concerns a new approach neutralizes distributional concerns by adjusting the income tax schedule we demonstrate that both approaches are derived from the same basic formula we also take the new approach further by deriving an intuitive formula for the optimal level of public goods without imposing strong assumptions on preferences this formula shows that distortionary taxation has a role to play as in the standard approach however the main determinants of optimal provision are different and the modified samuelson rule is likely to lead to underprovision

tax structure and growth in a model with human capital abstract the effect of the tax structure on the long run growth rate of income and consumption is analyzed where tax structure refers to the mix of taxes on physical and human capital which satisfy an exogenously given government budget constraint the factor used intensively in the consumption good sector relative to the capital goods sector as a whole is taxed more highly in a growth maximizing tax structure an endogenous labor supply the tax treatment of depreciation and the effect of replacing the income tax with a consumption tax are all considered

taxing education in ramsey s tradition abstract assuming a two period model with endogenous choices of labour education and saving it is shown to be second best efficient to deviate from ramsey s rule and to distort qualified labour less than nonqualified labour furthermore if the earnings function displays constant elasticity the choice of education should not be distorted with the necessary qualifications the results extend to the case when taxpayers are heterogeneous and when the planner trades off efficiency against equity

gender wage discrimination in the thai labor market in thai this paper investigates the presence of gender wage differentials in the thai labor market a two step approach heckman 1979 was applied in estimating wage equations to avoid sample selection bias the wage differential decomposition methods oaxaca 1973 cotton 1988 oaxaca and ransom 1994 were used the data used were obtained from the labor force survey july september 2008 conducted by the national statistical office of thailand the findings indicate that female workers received lower wages than male workers because of their gender not because they are less productive on the contrary the female workers were shown to be more productive than the men the analysis indicates they would have earned higher wages than men this is especially true in the age groups 15 24 and 25 54 years old although the wage gap was partly explained by a lower productivity of workers 55 60 years old wage discrimination played a substantial role wage discrimination was worse in the younger than the older worker groups

comprehensive income taxation investments in human and physical capital and productivity abstract this paper analyses the implications of the comprehensive income tax for the accumulation of human and physical capital and for the overall productivity level of the economy a comprehensive income tax applying to both labour income and capital income is shown to discriminate against investments in human capital relative to investments in physical capital it has an adverse impact on human capital accumulation and lowers productivity

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

a reexamination of the optimal nonlinear income tax abstract this paper investigates mirrlees model of optimal income taxation it provides a concrete example of utility and density functions for which the solution to the usual first order model is not implementable i e and example where the first order approach does not work adding second order conditions leads to an extended model and to implementable solutions if these conditions are binding one gets a kink in the optimal net income schedule and bunching of individuals occurs the properties of an optimal nonlinear income tax are reexamined within the extended model

optimal taxation and spending in general competitive growth models abstract we find that the optimal long run tax on capital income is zero even if the capital stock does not converge to a steady state nor to a steady state growth rate the optimal tax on human capital is also zero if human capital is not a final good but the long run wage tax is not generally zero we argue that consumption tax proposals such as the flat tax are not consumption taxes and are biased against human capital

educational inequality and public policy preferences evidence from representative survey experiments abstract to study how information about educational inequality affects public concerns and policy preferences we devise survey experiments in representative samples of the german population providing information about the extent of educational inequality strongly increases concerns about educational inequality it also affects support for equity oriented education policies which have high baseline support although effects are quantitatively small on average however instrumental variable estimates suggest substantial effects of concerns on policy preferences among the compliers whose concerns are shifted by the information treatment there are substantial effects on support for compulsory preschool which increases further if respondents are informed about policy effectiveness

the returns to education microeconomics in this paper we focus on education as a private decision to invest in human capital and the estimation of the rate of return to that private investment while the literature is replete with studies that estimate the rate of return using regression methods where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics the issue is surrounded with difficulties we outline the theoretical arguments underpinning the empirical developments and show that the evidence on private returns to the individual is compelling despite some of these issues surrounding the estimation of the return to schooling our evidence based on estimates from a variety of datasets and specifications is that there is an unambiguously positive effect on the earnings of an individual from participation in education moreover the size of the effect seems large relative to the returns on other investments

optimal tax mix with income tax non compliance abstract although developing countries face high levels of income inequality they rely more on consumption taxes which tend to be linear and are less effective for redistribution than a non linear income tax one explanation for this pattern is that the consumption taxes are generally more enforceable in these economies this paper studies the optimal combination of a linear consumption tax with a non linear income tax for redistributive purposes in our model households might not comply with the income tax code by reporting income levels that differ from their true income however the consumption tax is fully enforceable we derive a formula for the optimal income tax schedule as a function of the consumption tax rate the recoverable elasticities and the moments of the taxable income distribution our equation differs from those of mirrlees 1971 and saez 2001 because households face a consumption tax and they respond to income tax not only through labor supply but also through mis reporting their incomes both aspects are empirically relevant to our calibration of the optimal top rate in the russian economy we then characterize the optimal mix between a linear consumption tax rate and a non linear income tax schedule finally we find that the optimal consumption tax rate is non increasing in the redistributive motives of the social planner

how can scandinavians tax so much american visitors to scandinavian countries are often puzzled by what they observe despite large income redistribution through distortionary taxes and transfers these are very high income countries they rank among the highest in the world in terms of income per capita as well as most other economic and social outcomes the economic and social success of scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare to form a basis for the discussion table 1 shows tax revenues and income tax rates in the three scandinavian countries denmark norway and sweden as compared to other european countries and the united states we see that the tax to gdp ratio and the tax rates on income are much higher in scandinavia than elsewhere the top marginal tax rates are about 60 70 percent in the scandinavian countries as opposed to only 43 percent in the united states the contrast is even more striking when considering the so called participation tax rate which is the effective average tax rate on labor force participation when accounting for the distortions due to income taxes payroll taxes consumption taxes and means tested transfers this tax rate is around 80 percent in the scandinavian countries implying that an average worker entering employment will be able to increase consumption by only 20 percent of earned income due to the combined effect of higher taxes and lower transfers by contrast the average worker in the united states gets to keep 63 percent of earnings when accounting for the full effect of the tax and

social background education and inequality the role parents education plays for the educational achievements of children is a source of unequal opportunities through this channel the number of educated affects the options of future cohorts creating a social multiplier effect making improvements in education self reinforcing policies to compensate for inequalities of opportunities public education or transfers have very different implications transfers not only reduce inequality on impact but also reduce social mobility while public education even if a perfect substitute to private education works in the opposite direction social impediments to education are similar to a market imperfection and publicly provided education may lead to a pareto improvement jel d3 i2 h2 h4

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

human capital investment and globalization in extortionary states abstract this paper considers education investment and public education policy in closed and open economies with an extortionary government the extortionary government in a closed economy chooses an education policy in order to overcome a hold up problem of time consistent taxation similar to benevolent governments the two types of government differ in their education policies if highly productive labor is mobile extortionary governments incentives for a policy that stimulates higher private education efforts vanish instead they have incentives to prevent individuals from mobility increasing education investment tax competition therefore reduces hold up problems of time consistent extortionary taxation but introduces other distortions that reduce workers utility

redistribution and education subsidies are siamese twins abstract we develop models of optimal linear and non linear income taxation with endogenous human capital formation to explore optimal education subsidies optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies if the government cannot verify all investments in human capital education policy offsets some but not all tax induced distortions on learning non pecuniary educational costs benefits may increase decrease subsidies on education especially if they are complementary to work effort

teach a man to fish education vs optimal taxation in models of redistribution differences in human capital are often the relevant source of heterogeneity among individuals presumably the distribution of human capital can be manipulated through education spending this paper examines the use of education as a redistributive tool when there is a non linear tax system in place the results show that taxation whether under full or asymmetric information substantially reduces the redistributive role of education spending in maximizing social welfare this points to a conflict between the equalization of utility and human capital outcomes dans les modeles de redistribution des differences dans le capital humain sont souvent la source pertinente d heterogeneite entre individus censement la distribution de capital humain peut etre manipulee par le truchement des depenses en education ce texte examine l utilisation de l education en tant qu instrument de redistribution quand un regime de fiscalite non lineaire est en place les resultats montrent que la fiscalite en regime de d information complete ou asymetrique reduit substantiellement le role de redistribution des depenses en education pour maximiser le bien etre social voila qui souligne un conflit entre l egalisation de l utilite et les resultats en termes de capital humain

risky human capital and deferred capital income taxation abstract we study the structure of optimal wedges and capital taxes in a dynamic mirrlees economy with endogenous distribution of skills human capital is a private stochastic state variable that drives the skill process of each individual building on the findings of the labor literature we construct a tractable life cycle model of human capital evolution with risky investment and stochastic depreciation in this setting we demonstrate the optimality of a a human capital premium i e an excess return on human capital relative to physical capital b a large intertemporal wedge early in the life cycle and c a non zero intratemporal wedge even at the top of the skill distribution at all dates except the last date in the life cycle the main implication for the structure of optimal linear capital taxes is the necessity of deferred taxation of physical capital the average marginal tax rate on physical capital held in every period is zero in present value however expected capital tax payments do not equal zero in every period necessarily agents face negative expected capital tax payments early in the life cycle and positive expected capital tax payments late in the life cycle

participation and study decisions in a public system of higher education we analyze the decision whether to participate and where and what to study in a public system of higher education based on a unique dataset of all eligible high school pupils in an essentially closed region flanders we find that pupils perceive the available institutions and programs as close substitutes relative to the outside option this implies an ambiguous role for travel costs they hardly affect the participation decision but have a strong impact on the decision where and what to study to illustrate how our empirical results can inform the debate on reforming public systems we assess the effects of tuition fee increases uniform cost based tuition fee increases achieve most of the welfare gains the additional gains from fee differentiation are relatively limited these welfare gains are quite large under conservative assumptions on the social cost of public funds and there is a substantial redistribution from students to outsiders copyright 2009 john wiley sons ltd