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Using Human-Capital Theory to Establish a Potential-Income Tax

Dagney Faulk, Jorge Martinez-Vazquez () and Sally Wallace ()

FinanzArchiv: Public Finance Analysis, 2007, vol. 63, issue 3, 415-435

Abstract: There are good arguments for an individual income tax on potential income, but a drawback to such a tax is the significant administrative concern regardingits implementation. This paper argues that human-capital theory provides a widely accepted and straightforward method to estimate potential income using observed characteristics of individuals, and operationalizes this approach using data for the U.S. The paper also suggests that a potential-income tax is verysimilar to a presumptive income tax. The paper concludes by reviewing some significant problems with the implementation of a potential or presumptive income tax.

Keywords: presumptive tax; potential-income tax; human capital (search for similar items in EconPapers)
JEL-codes: H2 J24 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1628/001522107X250131

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