Optimal Nonlinear Taxation of Income and Education Expenditures

Jang-Ting Guo and Alan Krause

No 201008, Working Papers from University of California at Riverside, Department of Economics

Abstract: Despite using a variety of models and assumptions, the existing literature has overwhelmingly concluded that education policy should be regressive. In this paper, we examine a two-period model in which the government may impose non- linear taxes on both labour income and education expenditures. Individuals un- dertake education in the Örst period to increase their second-period wages. Our main result is that optimal education policy in our model is progressive. SpeciÖ- cally, if the government can commit, it is optimal for high-skill individuals to face a zero marginal tax rate on their education expenditures, while that for low-skill individuals is negative. If the government cannot commit, the optimal marginal tax rate on education expenditures by high-skill individuals is positive, while that for low-skill individuals remains negative.

Keywords: education policy; dynamic nonlinear taxation; commitment. (search for similar items in EconPapers)
JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2010-08, Revised 2010-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Optimal nonlinear taxation of income and education expenditures (2013)
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