Human Capital and Optimal Positive Taxation of Capital Income
45 Pages Posted: 15 Sep 2005
There are 2 versions of this paper
Human Capital and Optimal Positive Taxation of Capital Income
Date Written: May 2005
Abstract
This paper analyzes optimal linear taxes on capital and labor incomes in a life-cycle model of human capital investment, financial savings, and labor supply with heterogenous individuals. A dual income tax with a positive marginal tax rate on not only labor income but also capital income is optimal. The positive tax on capital income serves to alleviate the distortions of the labor tax on human capital accumulation. The optimal marginal tax rate on capital income is lower than that on labor income if savings are elastic compared to investment in human capital; substitution between inputs in human capital formation is difficult; and most investments in human capital are verifiable. Numerical calculations suggest that the optimal marginal tax rate on capital income is close to the tax rate on labor income.
Keywords: Human capital, labor income taxation, capital income taxation, life cycle, education subsidies
JEL Classification: H2, H5, I2, J2
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Redistribution and Education Subsidies are Siamese Twins
By A. Lans Bovenberg and Bas Jacobs
-
Redistribution and Education Subsidies are Siamese Twins
By A. Lans Bovenberg and Bas Jacobs
-
On the Optimal Taxation of Capital Income
By Larry Jones, Rodolfo Manuelli, ...
-
Risky Human Capital and Deferred Capital Income Taxation
By Borys Grochulski and Tomasz Piskorski
-
Optimal Taxation of Human and Physical Capital in Endogenous Capital Models
-
Optimal Taxation of Risky Human Capital
By Bas Jacobs, Dirk Schindler, ...
-
Optimal Taxation of Human Capital and the Earnings Function
By Bas Jacobs and A. Lans Bovenberg
-
Optimal Taxation in Theory and Practice
By N. Gregory Mankiw, Matthew Weinzierl, ...