Optimal Taxation of Human Capital and the Earnings Function

  title={Optimal Taxation of Human Capital and the Earnings Function},
  author={Bas Jacobs and A. Lans Bovenberg},
This paper explores how the specification of the earnings function impacts the optimal tax treatment of human capital. If education is complementary to labor effort, education should be subsidized to offset tax distortions on labor supply. However, if most of the education is enjoyed by high ability households, education should be taxed in order to redistribute resources to the poor. The paper identifies the exact conditions under which these two effects cancel and education should be neither… CONTINUE READING

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