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Title:Efficient tax policy ranks education higher than saving PDF Logo
Authors:Richter, Wolfram F.
Issue Date:2007
Series/Report no.:CESifo working paper 2106
Abstract:Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient not to distort the choice of education. In general this implies distorting the saving decision. Hence a strict order of policy priority is derived. Efficient tax policy ranks investment in human capital higher than investment in nonhuman capital. The result assumes an isoelastic earnings function and holds else for arbitrary utility functions. Isoelasticity of earnings is justified with reference to the empirically well-founded power law of learning.
JEL:H21
I28
J24
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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