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Income Taxation, Tuition Subsidies, and Choice of Occupation: Implications for Production Efficiency

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  • Geir Haakon Bjertnæs

Abstract

The desirability for production efficiency is re-examined in this study, where agents choose occupation based on lifetime income net of tuition costs. Efficient revenue raising implies that the government should trade off efficiency in production for efficiency in intertemporal consumption, as capital income is taxed in optimum. The subsequent wage difference between high- and low-skilled occupations is increased compared to a production efficient outcome, which is in contrast to previous results in the literature.

Suggested Citation

  • Geir Haakon Bjertnæs, 2005. "Income Taxation, Tuition Subsidies, and Choice of Occupation: Implications for Production Efficiency," CESifo Working Paper Series 1627, CESifo.
  • Handle: RePEc:ces:ceswps:_1627
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    References listed on IDEAS

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    1. Saez, Emmanuel, 2004. "Direct or indirect tax instruments for redistribution: short-run versus long-run," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 503-518, March.
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    3. Geir Haakon Bjertnæs, 2001. "Optimal Combinations of Income Tax and Subsidies for Education," Discussion Papers 313, Statistics Norway, Research Department.
    4. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "General-Equilibrium Treatment Effects: A Study of Tuition Policy," American Economic Review, American Economic Association, vol. 88(2), pages 381-386, May.
    5. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
    6. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
    7. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
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    Keywords

    optimal income taxation; subsidies for tuition; skill formation; production efficiency;
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