The Effect of Endogenous Human Capital Accumulation on Optimal Taxation

William Peterman

No 204, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use age-dependent labor income taxes. If the government cannot condition taxes on age, then it is optimal to use a tax on capital in order to mimic such taxes. Quantitatively, introducing learning-by-doing or learning-or-doing increases the optimal tax on capital by forty or four percent, respectively. Overall, the optimal tax on capital is thirty five percent higher in the model with learning-by-doing compared to the model with learning-or-doing implying that how human capital accumulates is of significant importance when determining the optimal tax policy.

Date: 2012
New Economics Papers: this item is included in nep-dge, nep-hrm and nep-pbe
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: The effect of endogenous human capital accumulation on optimal taxation (2016)
Working Paper: The effect of endogenous human capital accumulation on optimal taxation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:204

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