On the positive effects of taxation on education

Lari Viianto (la.viianto@ugto.mx)

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: In the economic literature a constant tax rate on labor income has usually a neutral or negative effect on education. The effect is neutral in the absence of non-deductible costs and it is negative in the presence of them. A positive effect is obtained in the presence of non-deductible profits or uncertainty in the returns to education. In this model education is treated as a signalling device for the level of human capital and agents choose freely their labor supply under certainty and perfect financial markets. Within this framework a constant tax rate on labor income has a positive effect on education under certainty and in the absence of non-deductible costs or profits as long as consumption and leisure are complementary and the amount of transfers and family income is low enough.

Keywords: Education; taxes (search for similar items in EconPapers)
JEL-codes: H20 H24 I20 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-12
New Economics Papers: this item is included in nep-edu and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2007-30

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