Redistribution and Education Subsidies are Siamese Twins

Tinbergen Institute Discussion Paper No. TI 05-036/3

45 Pages Posted: 19 Apr 2005

See all articles by A. Lans Bovenberg

A. Lans Bovenberg

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Bas Jacobs

Erasmus University Rotterdam (EUR); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

We develop a model of human capital formation with endogenous labor supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal schedule of the labor income tax. If the government can observe inputs into the production of human capital, subsidies on education ensure efficiency in human capital accumulation and labor taxes are more progressive than without education policies. Although the able benefit more than proportionally from education subsidies, education subsidies thus play an important role in alleviating the tax distortions in human capital accumulation induced by redistributive policies. If the government can not verify all investments in human capital, education policy offsets some but not all the tax-induced distortions on learning.

Keywords: Human capital, education subsidies, progressive taxation, redistribution

JEL Classification: H2, H5, I2, J2

Suggested Citation

Bovenberg, A. Lans and Jacobs, Bas, Redistribution and Education Subsidies are Siamese Twins (April 2005). Tinbergen Institute Discussion Paper No. TI 05-036/3, Available at SSRN: https://ssrn.com/abstract=701221 or http://dx.doi.org/10.2139/ssrn.701221

A. Lans Bovenberg (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

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Bas Jacobs

Erasmus University Rotterdam (EUR) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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