Taxing Human Capital: A Good Idea

30 Pages Posted: 14 Nov 2010

See all articles by Christoph Braun

Christoph Braun

University of Dortmund - Ruhr Graduate School in Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 12, 2010


This paper studies a Ramsey optimal taxation model with human capital in an infinite-horizon setting. Contrary to Jones, Manuelli, and Rossi (1997), the human capital production function does not include the current stock of human capital as a production factor. As a result, the return to human capital, namely labor income, does not vanish in equilibrium. In a stationary state, the household underinvests in human capital relative to the fi rst best, i.e., education is distorted. Human capital is effectively taxed. The optimal tax scheme prescribes making the cost of education not fully tax-deductible.

Keywords: Optimal Taxation, Human Capital, Ramsey Approach

JEL Classification: H21, I28, J24

Suggested Citation

Braun, Christoph, Taxing Human Capital: A Good Idea (November 12, 2010). Ruhr Economic Paper No. 202, Available at SSRN: or

Christoph Braun (Contact Author)

University of Dortmund - Ruhr Graduate School in Economics ( email )

Dortmund, 44221

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