Optimal Wage Taxation When Human Capital and Employment Are Endogenous

Brent Kreider ()

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper studies how optimal wage tax conclusions from the classic two-period life-cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers. In the absence of a corrective policy, young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment. Compensated wage taxes and subsidies can restore proper price signals. Numerical simulations suggest that even modest extensive margin employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates.

Date: 2008-10-01
New Economics Papers: this item is included in nep-cmp, nep-lab, nep-pbe and nep-pub
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Published in Economic Inquiry, October 2008, vol. 46 no. 4, pp. 660-675

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Journal Article: OPTIMAL WAGE TAXATION WHEN HUMAN CAPITAL AND EMPLOYMENT ARE ENDOGENOUS (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12358

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