The effect of endogenous human capital accumulation on optimal taxation

No 2012-03, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Capital; Human capital; Taxation (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-acc, nep-dge, nep-hrm, nep-pbe and nep-pub
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Citations: View citations in EconPapers (15)

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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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