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Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour

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  • Richter, Wolfram F.

Abstract

Assuming isoelastic returns to education and an endogenous supply of qualified and nonqualified labour, it is shown to be second-best efficient not to distort the choice of education. Furthermore, taxation should set incentives so that qualified labour is substituted for nonqualified labour. As a result, it is efficient to tax labour income regressively with respect to qualification and to tax the monetary cost of education at a level that restores efficiency in education. Atax on capital income alleviates the distortion that progressive taxation of labour income exerts on human-capital investment.

Suggested Citation

  • Richter, Wolfram F., 2007. "Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour," Ruhr Economic Papers 12, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:12
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    References listed on IDEAS

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    Cited by:

    1. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
    2. Wolfram F. Richter, 2007. "Efficient Tax Policy Ranks Education Higher than Saving," CESifo Working Paper Series 2106, CESifo.
    3. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
    4. Richter, Wolfram F. & Braun, Christoph, 2009. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," IZA Discussion Papers 4629, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Endogenous choice of education and labour; efficient taxation of human and nonhuman capital; double-dividend hypothesis;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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