Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25877
Authors: 
Richter, Wolfram F.
Year of Publication: 
2006
Series/Report no.: 
CESifo working paper 1832
Abstract: 
Assuming decreasing returns to education and the endogenous supply of qualified and nonqualified labour it is shown to be efficient to supplement a consumption tax with positive incentives for education. If the return from education is isoelastic and if the choice is between (i) subsidizing the monetary cost of education and (ii) taxing nonqualified labour income more heavily than qualified labour income while keeping the effective cost of education constant, the latter policy is shown to be second-best efficient. In particular, any tax distortions should be constrained to labour choices while the choice of education should remain undistorted. The result holds for arbitrary utility functions.
JEL: 
H2
I2
J24
Document Type: 
Working Paper

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