Efficient Tax Policy Ranks Education Higher Than Saving

Wolfram Richter

No 3451, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient not to distort the choice of education. In general this implies distorting the saving decision. Hence a strict order of policy priority is derived. Efficient tax policy ranks education higher than saving. The result assumes an isoelastic earnings function and holds else for arbitrary utility functions. Isoelasticity of earnings is justified with reference to the empirically well-founded Power Law of Learning.

Keywords: efficient taxation of human and nonhuman capital investment; labour and saving; endogenous choice of education; power law of learning (search for similar items in EconPapers)
JEL-codes: H21 I28 J24 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008-04
New Economics Papers: this item is included in nep-edu and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version based on DP 2328 and DP 3451 published as "Taxing education in Ramsey's tradition" in: Journal of Public Economics, 2009, 93 (11-12), 1254-1260

Downloads: (external link)
https://docs.iza.org/dp3451.pdf (application/pdf)

Related works:
Working Paper: Efficient Tax Policy Ranks Education Higher than Saving (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp3451

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().