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Tax Effects, Search Unemployment, and the Choice of Educational Type

Author

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  • Annette Alstadsæter
  • Ann-Sofie Kolm
  • Birthe Larsen

Abstract

This paper examines the effect of taxes on the individuals’ choices of educational direction, and thus on the economy’s skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.

Suggested Citation

  • Annette Alstadsæter & Ann-Sofie Kolm & Birthe Larsen, 2005. "Tax Effects, Search Unemployment, and the Choice of Educational Type," CESifo Working Paper Series 1622, CESifo.
    • Handle: RePEc:ces:ceswps:_1622
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1622.pdf
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    References listed on IDEAS

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    1. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
    2. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-683, October.
    3. Kevin A. Hassett, 1999. "Tax Policy and Investment," Books, American Enterprise Institute, number 53049, September.
    4. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
    5. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    6. Annette Alstadsæter, 2003. "Income Tax, Consumption Value of Education, and the Choice of Educational Type," CESifo Working Paper Series 1055, CESifo.
    7. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Alstadsí¦ter, Annette & Kolm, Ann-Sofie & Larsen, Birthe, 2008. "Money or joy: The choice of educational type," European Journal of Political Economy, Elsevier, vol. 24(1), pages 107-122, March.
    2. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 14(1), pages 1-28, February.
    3. repec:dau:papers:123456789/179 is not listed on IDEAS
    4. von Greiff, Camilo, 2007. "Specialization in Higher Education and Economic Growth," Research Papers in Economics 2007:13, Stockholm University, Department of Economics.

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    More about this item

    Keywords

    unemployment; matching; education; optimal taxation; tuition fees;
    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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