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Taxation, Human Capital, and Uncertainty

Author

Listed:
  • Jonathan Eaton

    (Princeton University)

  • Harvey S. Rosen

    (Princeton University)

Abstract

This paper analyzes the effect of wage and interest taxation on investment in human capital. It is shown that results derived under the assumption that human.capital is a riskless asset fail to obtain when the return on human capi- tal is uncertain. The interaction of the human capital investment decision with savings, consumption and labor-leisure choices are taken into account. An implication of the analysis is that, when the rate of return on human capi- tal is stochastic, efficient taxation requires positive taxation of wage income even when lump-sum taxation is feasible.

Suggested Citation

  • Jonathan Eaton & Harvey S. Rosen, 1979. "Taxation, Human Capital, and Uncertainty," Working Papers 497, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:117
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    JEL classification:

    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other

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