 Tax Progression and Human Capital in Imperfect Labour MarketsClemens Fuest and Bernd Huber No 98-03, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics Abstract: Recent contributions to the theory of taxation in imperfect labour markets argue that tax progression raises welfare and employment in the presence of involuntary unemployment. The underlying theoretical analysis takes the endowment of workers with human capital as given. It is well known, however, that tax progression reduces incentives to form human capital. This paper analyses the effects of tax progression in a model with imperfect labour markets and endogenous human capital formation. We show that tax progression reduces wages but also human capital investment. The decline in human capital formation has a negative impact on employment which outweighs the employment-enhancing effect of the lower wage rate, such that tax progression unambiguously reduces employment and welfare. New Economics Papers: this item is included in nep-lab There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:98-03 Access Statistics for this paper More papers in EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics �ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.