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Taxing Education in Ramsey's Tradition

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  • Richter, Wolfram F.

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.

Suggested Citation

  • Richter, Wolfram F., 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers 140, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:140
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    References listed on IDEAS

    as
    1. Berthold U. Wigger, 2004. "Are Higher Education Subsidies Second Best?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 65-82, March.
    2. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-706, September.
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    4. Anderberg, Dan, 2009. "Optimal policy and the risk properties of human capital reconsidered," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1017-1026, October.
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    6. Wolfram F. Richter, 2007. "Efficient Tax Policy Ranks Education Higher than Saving," CESifo Working Paper Series 2106, CESifo.
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    13. Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 451-478, October.
    14. 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.
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    16. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
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    19. 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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    Cited by:

    1. Wolfram F. Richter & Berthold U. Wigger, 2012. "Besteuerung des Humanvermögens," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 82-102, February.
    2. repec:got:cegedp:137 is not listed on IDEAS
    3. Wolfram F. Richter & Kerstin Schneider, 2021. "Education: Optimal choice and efficient policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 840-863, May.
    4. Margit Schratzenstaller-Altzinger & Fanny Dellinger, 2017. "Genderdifferenzierte Lenkungswirkungen des Abgabensystems," WIFO Studies, WIFO, number 60797.
    5. Carlos Bethencourt & Lars Kunze, 2017. "Temptation and the efficient taxation of education and labor," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 986-1000, November.
    6. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," University of Göttingen Working Papers in Economics 137, University of Goettingen, Department of Economics.
    7. Richter, Wolfram F., 2013. "Mincer Equation, Power Law of Learning, and Efficient Education Policy," IZA Discussion Papers 7280, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Endogenous choice of education; labour; and saving; second-best efficient taxation; linear instruments; finite periods; Ramsey's Rule; Power Law of Learning;
    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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