Taxing Education in Ramsey's Tradition

Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient to deviate from Ramsey's Rule and to distort qualified labour less than nonqualified labour. Furthermore, if the earnings function displays constant elasticity, the choice of education should not be distorted. With the necessary qualifications the results extend to the case when taxpayers are heterogeneous and when the planner trades off efficiency against equity.Endogenous choice of education, labour, and saving; second-best efficient taxation; linear instruments; finite periods; Ramsey's Rule; Power Law of Learning

Delaying Integration of Immigrant Labor for the Purpose of Taxation

Delayed Integration ("DI") is a rule for taxing migrants. It requires that immigrants be taxed in the receiving country only after some period of transition. Conversely, emigrants are released from the obligation to pay home taxes only after a certain period. DI is an alternative to the Employment Principle and the Origin Principle. The former governs the international taxation of labor while a close substitute to the latter - the Nationality Principle - is underlying U.S. tax law. The paper studies the potential merits of DI in a setting which allows one to trade off the social cost of tax distortion and the social cost of wasteful government.

Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour

Assuming isoelastic returns to education and an endogenous supply of qualified and nonqualified labour, it is shown to be second-best efficient not to distort the choice of education. Furthermore, taxation should set incentives so that qualified labour is substituted for nonqualified labour. As a result, it is efficient to tax labour income regressively with respect to qualification and to tax the monetary cost of education at a level that restores efficiency in education. Atax on capital income alleviates the distortion that progressive taxation of labour income exerts on human-capital investment.Endogenous choice of education and labour, efficient taxation of human and nonhuman capital, double-dividend hypothesis

Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-qualified Labour more Heavily than Qualified Labour

Assuming decreasing returns to education and the endogenous supply of qualified and non-qualified 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.endogenous choice of labour and education, efficient taxation, human capital investment, double dividend hypothesis

Efficient Education Policy - A Second-Order Elasticity Rule

Assuming a two-period model with endogenous choices of labor, education, and saving, efficient education policy is characterized for a Ramsey-like scenario in which the government is constrained to use linear instruments. It is shown that education should be effectively subsidized if, and only if, the elasticity of the earnings function is increasing in education. The strength of second-best subsidization increases in the elasticity of the elasticity of the earnings function. This second-order elasticity rule extends the well-known Ramsey-Boiteux inverse elasticity rule.endogenous choice of education, second-best efficient taxation, linear instruments, finite periods, Ramsey’s Rule, inverse elasticity rule

Efficient Tax Policy Ranks Education Higher than Saving

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.endogenous choice of education, labour, and saving, efficient taxation of human and nonhuman capital investment, power law of learning

Taxing Education in Ramsey's Tradition

Assuming a two-period model with endogenous choices of labour, education, and saving, it is shown to be second-best efficient to deviate from Ramsey’s Rule and to distort qualified labour less than nonqualified labour. The result holds for arbitrary utility and learning functions. Efficient incentives for education and saving are analysed under conditions of second and third best. It is argued that efficient tax policy should care more about incentives for education than for saving.endogenous choice of education, labour, and saving, second-best efficient taxation, Power of Law of Learning

Efficiency Effects of Tax Deductions for Work-Related Expenses

In this paper it is shown that allowing the deduction of work-related expenses has a strictly positive effect on tax efficiency only if two conditions hold jointly: (i) The expenses should be interpretable as real cost and (ii) the expenses should be required for increasing taxable income. Otherwise deductions are inefficient, neutral or ambiguous. Thus it is argued that the cost of commuting to work should not be deductible as commuting does not increase taxable income. The efficiency enhancing effect of deducting other expenses like educational ones or expenses for housework and child care is challenged on the grounds that these expenses are largely pecuniary costs.income tax deductions, commuting, housework, child care, educational expenses, efficient taxation, production efficiency

Delayed Integration of Mobile Labor: A Principle for Coordinating Taxation, Social Security, and Social Assistance

Delayed Integration is a rule for assigning mobile individuals to jurisdictions for the purpose of taxation, social security, and social assistance. It is a compromise between the Origin Principle and the Employment Principle. Individuals are assigned to the jurisdiction to which they move only after a coordinated period of transition. The paper discusses the merits and shortcomings of such an assignment rule.