Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/85947 
Authors: 
Year of Publication: 
2002
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 02-045/2
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper augments the theory of optimal linear income taxation by taking into account human capital accumulation as a dimension of labor supply. The distribution of earning potentials is endogenous because agents differ in the ability to learn. Taxation affects utilization rates of human capital through labor supply responses. The costs of education that are not deductible from the income tax distort the learning decision as well. We show theoretically that the trade-off between efficiency and equity is worsened. Quantitative analysis shows that the distortionary costs of taxation increase substantially when human capital formation is endogenous.
Subjects: 
optimal linear taxation
labor supply
human capital accumulation
JEL: 
H21
J22
J24
Document Type: 
Working Paper

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