Tax progression and human capital in imperfect labour markets

Clemens Fuest and Bernd Huber

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: Recent contributions to the theory of taxation argue that tax progression raises welfare and employment in the presence of labour market imperfections. This literature takes the endowment of workers with human capital as given. The present paper analyses the effects of tax progression in a model with endogenous human capital formation. We show that the effect of tax progression on human capital investment depends on the deductibility of the cost of human capital formation. With full deductibility, tax progression raises employment and welfare. With incomplete deductibility, in contrast, the effect of tax progression on employment and welfare may be negative.

Date: 2001
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Published in German Economic Review 1 2(2001): pp. 1-18

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Related works:
Journal Article: Tax Progression and Human Capital in Imperfect Labour Markets (2001)
Journal Article: Tax Progression and Human Capital in Imperfect Labour Markets (2001)
Working Paper: Tax Progression and Human Capital in Imperfect Labour Markets
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:20291

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