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Tax Effects of Unemployment and the Choice of Educational Type

Annette Alstadsæter (), Ann-Sofie Kolm () and Birthe Larsen

No 2005:4, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper examines the effect of taxes on the individuals’ choices of educational direction, and thus on the economy’s skill composition. A proportional labour income tax induces too many workers with high innate ability to choose an educational type with high consumption value and low effort costs. This increases the skill mismatch and aggregate unemployment in the economy. The government can correct for this distortion by use of differentiated tuition fees or tax rates.

Keywords: Unemployment; matching; education; optimal taxation; tuition fees (search for similar items in EconPapers)
JEL-codes: H21 H24 J64 J68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu and nep-pbe
Date: 2005-04-20
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